[lmt55]

This is fair, you didn't miss those people. But I think it was worth me highlighting them because they are, as I argued, very important.

I somewhat agree with your argument. Housing costs more than other assets compared to its economic value, exactly because people have an emotional reaction to the idea of owning it - or the idea of not owning it.

However I have seen middle-class people overextend themselves to 'buy the dip', while their equally wealthy peers sit it out, for over 15 years now. Many of the people who did the former now consider themselves to have got a bargain, while many of the latter changed their minds and ended up buying several years later and at much higher prices.

I'm definitely not arguing that this makes buying right and renting wrong! Just that so far, this is how that choice played out.

[pooper]

A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.

I am curious what you guys think of this statement. I think the idea is if the potential rent you get out of your investment is too much under one percent, you might be better off investing in something else?

Now imagine a smallish 4 bed, 2 bath, 1,638 sqft built home on a 5,861 sqft lot in Longmont, Colorado (so not exactly a city but my preference because municipal fiber) that has a sticker price of USD 499,900. I can't imagine paying USD 4,999 every month in rent for this house at the moment. What gives? Is rent too low? My instinct is home prices are way too high but it can't just be "dumb money" keeping prices high, right? Eventually, there should be more supply causing prices to drop? Is something preventing this correction? If so, how do we fix it?

[lmt55]

An old rule of thumb was 'buy at 10, sell at 20'. That's the ratio of price to annual rent. So if you could get 0.86% of the house price in monthly rent, it was a big bargain. If you couldn't get more than 0.43%, then it wasn't worth owning.

The rule of thumb is now obsolete, and 30-40 times rent is perfectly common in lots of places.

The newsletter is quite a lot more aggressive than even the rule of thumb from the 'good old days' when interest rates were much higher.

I used to pay around 0.2% of the market price of my apartment per month. The landlord was a professional property management company, and this situation persisted through several new contracts.

[bombcar]

House prices are kind of attached to rent, but not entirely - especially in areas where there are few rentals, or lots of them.

Actual rental revenue received can be significantly lower than calculated if there are vacancies, etc. It’s much easier to do on an apartment building with many units.

[ddorian43]

> A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.

Does this have all taxes(property,rent,etc) included in the cost?

[pooper]

As far as I remember, no. This is just the sticker price. This is a conservative estimate for people who are not real estate professionals, probably looking to buy a house to rent for the first time. Based on the other comment reply, it sounds very conservative to dissuade people from making stupid decisions.