How much rent should a 1.2 mil investment property pull in a month/year?

[Deleted member 4644]

How much rent should a 1.2 mil investment property pull in a month/year?

By my calculations, it should be at least 6,200-6,700 or more a month. Am I about right?

(And this is assuming a pretty large down payment)

Note, this property is not exactly like the one in my hypo. However, it is somewhat similar.

Full info on the property is here:
http://valleyinvest.com/index_1074Genesee.html

Click on the PDF

 

[Kelvrick]

depends if you can fill it with tenants or not.

 

[RbSX]

Originally posted by: LordSegan
How much rent should a 1.2 mil investment property pull in a month/year?

By my calculations, it should be at least 6,200-6,700 or more a month. Am I about right?

(And this is assuming a pretty large down payment)

God thats awfully ambigious, 1.2 million dollar house? Apartment? Warehouse? What? Size? Location?

****** son.

 

[mugs]

Is this a single $1.2 million home, an apartment building with 10 units, an office building...?

 

[Slew Foot]

How much are your carrying costs? Subtract 1% of the house value per year for maintenance and assume an 80% occupancy rate. Your rent should be more than that.

PS. dont forget taxes and insurance.

 

[mugs]

And what does a down payment have to do with it?

 

[Slew Foot]

Is the rent you charge considered taxable income for you as well?

 

[Deleted member 4644]

4 units, 6 bed rooms total. Mugs: larger downpayment means lower mortgage payments per month.

 

[Slew Foot]

a large downpayment on a 1.2 mill house is a substantial amount. You might be better off putting it into a CD or stocks or something.

 

[mugs]

Originally posted by: LordSegan
4 units, 6 bed rooms total. Mugs: larger downpayment means lower mortgage payments per month.

Yes, but you also have to consider that you've lost the use of that money. So you might as well leave it out of your equation entirely. I mean, if you paid $1.2 million cash for the property you'd want the same rent as if you paid $400k cash and got a loan for $800k, right?

 

[Deleted member 4644]

Originally posted by: mugs

Originally posted by: LordSegan
4 units, 6 bed rooms total. Mugs: larger downpayment means lower mortgage payments per month.

Yes, but you also have to consider that you've lost the use of that money. So you might as well leave it out of your equation entirely. I mean, if you paid $1.2 million cash for the property you'd want the same rent as if you paid $400k cash and got a loan for $800k, right?

How do you figure that? I think it's better to use as much debt financing as possible so long as you are sure you can keep up with the payments using the rent.

 

[slayer202]

exactly $5,871.29/month, down to the last penny

 

[Greenman]

We can say it should bring in x amount, and it might look just dandy on paper, but what you can really get depends on the property and the market in you're area. Sounds to me like you need to do a lot more homework before you dive into this.

 

[beer]

*shrug* I live in one floor of a 1.3 mil house in SF. We pay $2700 a month, assuming the upstairs (also a 3br) pays $2700 and the girls downstairs pay $2000, that's $7400 a month.

But that's with 8 bedrooms (3 seperate units though). That actually wouldn't be profitable if bought _now_ at 1.3mil, but depending on when it was bought, it may have been profitable. A 30 year loan at 6% fixed would be 7794.16. That's actually a pretty good rent ratio for the landlords, actually....

 

[sandorski]

Find out what Rents are being paid on local properties of similar value.

 

[alpineranger]

I used to do work in commercial real estate valuation, and in that world, this is a very basic question.

What you want to find out is the cap rate of comparable properties. The cap rate is the direct link between the value of an investment property and the (annual) income it produces.

Value * cap_rate = annual income
You have the first value, can research the second, and want to know the third.

Obviously this is a simple calculation, and the real work is in determining what a proper cap rate for that property is. This is part of why you pay hundreds of dollars for a professional real estate appraiser to produce a valuation report. Appraisers will use certain services to scan databases of real transactions to find comparable properties. Some places that provide real estate comps actually list the cap rate for specific properties in their databases. One such service that I've used in the past is http://www.costar.com/Products/COMPS/. Unfortunately, these sites aren't free.

The cap rate is determined by factors including the local real estate environment at the current time, the location, and the "class" of the property (how nice it is). Without any further information regarding the property in question, there is no way to tell what the cap rate would be. There are people out there who put out periodic (usually quarterly) reports on the state of real estate in major markets, broken down by alls sorts of stuff, and tracking trends over the last few quarters. Cap rates will almost certainly be in there.

It is likely that you can get cap rate information from free sources, but I've never done it.

Based on my admittedly out-of-date knowledge, I'd say the cap rate would be anywhere from 5-6% for a very desirable property to 20% for one that isn't. Based on this range, a $1.2M property would yield an annual income of $60K to $240K, or $5K to 20K per month.

edit: I'm curious, what is the market, what sort of property is this, and what is your interest in knowing (for example, for tax/estate purposes, an appraiser will not go exclusively by cap rate to justify a lower appraised value, and thus a more favorable taxed amount for the client)

 

[drnickriviera]

Here's my math. 1.2 mill 20% down to aviod PMI. 6% 30yr, $10k taxes, $3k insurance + maintenance = $7000/mo. I guess in bizzaroland CA, people will say negative cash flow is ok because "They're not making more land, your property should appreciate 30% a year" But I want positive cash flow. I'd want a 5% ROI, so $12k profit/yr. SO assuming 80% occupancy, that works out to $10k/mo

 

[TheAdvocate]

Originally posted by: Slew Foot
How much are your carrying costs? Subtract 1% of the house value per year for maintenance and assume an 80% occupancy rate. Your rent should be more than that.

PS. dont forget taxes and insurance.

It should carry 125% of this figure plus a 4% management fee and a replacement reserve of no less than $.15/sq ft if it is residential.

 

[AgaBoogaBoo]

alpineranger hit the nail on the head, listen to what he said, cap rate is a very important tool when talking about investment properties.

 

[JEDI]

Originally posted by: LordSegan
4 units, 6 bed rooms total. Mugs: larger downpayment means lower mortgage payments per month.

4 units = 300k per unit

@5.5% interest, your nut (mortage/tax/maintanence) is ~$3k per unit.

so you need about $12k to breakeven

btw- update your 1st post with info

 

[PaNsyBoy8]

where is the property located? and how is the renting situation in your area?

 

[JS80]

good luck getting greater than a 6 cap rate in LA.

 

[JeffreyLebowski]

Originally posted by: drnickriviera
Here's my math. 1.2 mill 20% down to aviod PMI. 6% 30yr, $10k taxes, $3k insurance + maintenance = $7000/mo. I guess in bizzaroland CA, people will say negative cash flow is ok because "They're not making more land, your property should appreciate 30% a year" But I want positive cash flow. I'd want a 5% ROI, so $12k profit/yr. SO assuming 80% occupancy, that works out to $10k/mo

If you want 5% ROI just put your money in a Washington Mutual savings account. They're paying 5% now and there's no risk.

You have to also remember that every month that a unit is vacant, you loose money. With a target of only 5% you're going to have to have 100% oocupancy.


How large of a downpayment are you talking about? A large percentage, or like $100k or $200K
With $200k down, You'd need to charge and average of $3k a month to make your goals.

 

[JEDI]

Originally posted by: JeffreyLebowski

Originally posted by: drnickriviera
Here's my math. 1.2 mill 20% down to aviod PMI. 6% 30yr, $10k taxes, $3k insurance + maintenance = $7000/mo. I guess in bizzaroland CA, people will say negative cash flow is ok because "They're not making more land, your property should appreciate 30% a year" But I want positive cash flow. I'd want a 5% ROI, so $12k profit/yr. SO assuming 80% occupancy, that works out to $10k/mo

If you want 5% ROI just put your money in a Washington Mutual savings account. They're paying 5% now and there's no risk.

You have to also remember that every month that a unit is vacant, you loose money. With a target of only 5% you're going to have to have 100% oocupancy.


How large of a downpayment are you talking about? A large percentage, or like $100k or $200K
With $200k down, You'd need to charge and average of $3k a month to make your goals.

you can shoot for breakeven or even minor loss in hopes of BIG gains in real estate value

 

[Garet Jax]

The total value is not important in how much you can charge.

The comps are what is important. What are other similar properties in the same general location charging. If it is more than you would pay for mortgage payments (yay), if not then sell the property.