This is the wrong way to phrase it.Delawaredave wrote:Does any one have any experience/websites on SWR's for rental real estate ? Though I read somewhere that rents average 1%/month of property value.
That's 12% per year - sounds high. If one did the property management themselves and some repairs, is that a more reliable way to get a 6-7% SWR than equities ?
Here is the rule of thumb. You should not pay any more than 100 times the monthly rental income. That way, monthly rental income is at least 1% of the property value (gross).
These days, it is difficult to purchase such properties anywhere except in slums. Being a slumlord requires a unique personality.
There are ways to make money with lower rents. Leverage is what makes real estate investments special. Typically, a return that is only a small percentage of a property's price is magnified into a large percentage of the initial investment (down payment plus fees).
There are special concerns such as being able to pay your bills when you have a vacancy.
Here are two important rules that many (but not all) successful residential real estate investors follow:
1) Always maintain a positive cash flow.
2) Always make your capital gains when you buy. That is, buy low enough (including making ridiculously low bids) to assure yourself of a nice gain later on.
I do not know for sure where you live. But guessing from your name, my guess is that you are close enough to Washington DC to have a continually high demand. That is FMO's situation.
In the northeast and in the western seaboard, residential real estate prices have become highly volatile and extremely expensive right now. Those markets are dangerous. You can lose big. In addition, many (or most?) areas along the west coast restrict development which artificially inflates real estate prices. You are at the mercy of politicians.
[Quite often, you hear high sounding motivations attached to such restrictions such as maintaining the quality of life among all income groups. In reality, the economic effect is to increase prices and drive lower income people out of the area.]
My impression is that Mike comes from an area along the west coast with such artificial restrictions.
Have fun.
John R.