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Updated over 10 years ago on . Most recent reply

Account Closed
  • Fayetteville, AR
4
Votes |
42
Posts

Percentage of buying price for monthly rent

Account Closed
  • Fayetteville, AR
Posted
I'm a new investor wanting to get into under $70k SFR properties. What is the minimum percentage monthly rent to buying price you would use? I've seen some say the monthly rent should be 2% of the buying price but that seems high. Any thoughts?

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Chris Adams
  • Contractor
  • Valparaiso , IN
327
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604
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Chris Adams
  • Contractor
  • Valparaiso , IN
Replied

We can give you more examples than your want to read. But they won't help you as much as you sitting down and setting up some goals you want for your own rental portfolio. 

To start ask yourself why you want to invest in rentals and what you expect from them. 

You may want immediate cash flow to lower your immediate cost of living.

You may want to build a portfolio to add to your retirement later in life.

Or you may want to speculate and purchase properties in areas that you think are poised for dramatic growth in the future which will return huge equity gains. (This is the most dangerous and volatile type of investing) 

Then structure your portfolio accordingly. 

You mention you want to start with properties in the $70k range.  Why did you choose this number? Is it because you can afford it? Then your looking at this the wrong way. If you answer is " These are the properties that seem to demand the highest rent per square foot" or "These are the properties most in demand in my area" then your right on.

Generally properties that return less that 1% of value for monthly rent are going to struggle to cash flow very well. And properties that return 2%, are going to be in a less desirable neighborhood. 

Now look out 10-20 years and think about what you want your portfolio to look like. And build it backwards from there. Thats how I do it.

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