When Is it Profitable to Buy Rental Properties?


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A great article in CNN Money titled 12 Cities: Where to Rent vs. Buy┬áhas some interesting stats. They say, “To determine whether it makes more sound financial sense to rent or buy, economists generally use a rule of thumb: They divide the purchase price of a home by the annual rent of a similar property. Anything over a 15, and you should rent because it will cost you less over a period of time. Below 15? Start looking for homes.”

Real Estate Investors should use a similar, simple calculation as a rule of thumb to determine if a rental property will be profitable. If the average monthly rent in an area at or more than 1% of the purchase price of the house. Remember, there are many other factors to look at when covering the potential of an investment property. Not only do you need to cover the loan, but also have money to pay for maintenance, repairs and vacancies. This level will normally give you that cushion.

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