The right payment for a rental house?

[muck]

I was curious if anyone here knows anything about the market for rental real estate.

 

My specific question:

 

It would appear to me that the "correct" (or "fair") price for a rental should be based on some % value of the underlying property.

 

So, if a house worth $100,000 rents for $500 / mo, then a house that's worth $300,000 should rent for $1500 / mo.

 

Am I right? Or are rental homes' monthly rent rates based on something other than a % of the value of the underlying property value?

 

TIA.

[matt770]

I think it has less to do with the value of the house and more the condition of the house, the neighborhood and the rental market in a particular city. I would go on Craigslist and check out rents for comparable properties in the area.

[polksalet]

in this area the typical rent is for 1% of the property value. As the value drops the rate increases. a100k house here rents for 1,000 whereas a 30k house rents for 300-400.

[geeteebee]

There is no answer that is consistent from market to market or even neighborhood to neighborhood except that rental rates are what the market will bear. In the current economic environment, rental rates are actually higher than they have been due to the lack of credit. People who previously would have bought are now renting, driving demand higher. From an owner's perspective, one normally tries to cover a 30 year mtg payment + insurance + taxes + maintence reserve + management fee. However, oftentimes the market won't allow that to happen. In today's world, it may be very feasible.

[muck]

I think it has less to do with the value of the house and more the condition of the house, the neighborhood and the rental market in a particular city.

 

IMO, "value" is pretty well correlated w/ "condition" and "location".

 

IOW, a home in a swanky part of San Fran will have a different value than the identical property in El Paso.

 

I would go on Craigslist and check out rents for comparable properties in the area.

 

Good suggestion.

[muck]

in this area the typical rent is for 1% of the property value. As the value drops the rate increases. a100k house here rents for 1,000 whereas a 30k house rents for 300-400.

 

This is what I was thinking...

 

It should be relatively linear (imo).

 

Here the rental market appears to be somewhere between 0.5% and 0.8% of value, with the lower-end being "rent by owner" and the higher end rents being charged by those who list their house with a management company (who will take a large slice off the top).

[muck]

There is no answer that is consistent from market to market or even neighborhood to neighborhood except that rental rates are what the market will bear.

 

Right.

 

In the current economic environment, rental rates are actually higher than they have been due to the lack of credit. People who previously would have bought are now renting, driving demand higher.

 

Right.

 

From an owner's perspective, one normally tries to cover a 30 year mtg payment + insurance + taxes + maintence reserve + management fee. However, oftentimes the market won't allow that to happen. In today's world, it may be very feasible.

 

Right.

[Ursa Majoris]

a 30k house

Also known as a "shed"

[matt770]

IMO, "value" is pretty well correlated w/ "condition" and "location".

Not necessarily. You could put 50K of renovations into a 250K house, but if it's a 250K neighborhood, in other words no house in that area with similar square footage and number of bedrooms/baths has ever sold for more than 250K, it is not going to appraise for more than 250K. However, those renovations may have made the house more attractive to a renter and you could theoretically charge a higher rent.

[nuke'em ttg]

Also known as a "shed"

 

 

i'd rather rent Hat Tricks tree stand then a 30,000 dump, but that's probably 500 for 2/nights