I’m refining my understanding of how to value residential properties. There is this rule of thumb: buy when you can get a rent for the property which is at least 1.2% of the property price (or in another form, when the home price is 7x the annual rent). This is an approx for a more formal spreadsheet (which I have).

 

This is fine and dandy, but in the area I’m interested in a typical one bedroom condo sells for around $200,000-300,000 and you can get a monthly rent of $1,000-1,300. This doesn’t work by a very large factor. Hmmm…

 

Let’s change the target to a cheaper area. Now I can probably get around $800 monthly. To make things work I need to find a condo for $67,200. Not an easy task, almost impossible.

 

It looks like for me it is hard to find a house in an area I like and at the same time make a good investment (unless the market bails me out by raising home prices at a high rate). There is quite a large disconnect between house prices and rents now. Maybe the residential market is really on the brink of a fall… Time to rent again?