Comments on: Bubble Economics – 150 to 200 Rule in Real Estate

By: David Roth

David Roth — Sat, 17 Oct 2009 07:06:29 +0000

October 2009, East Bay Area, CA: The ratios here are extraordinary. Houses renting around 3000 are 800k-1M, making a ratio of about 270-330. UNBELIEVABLE! Even with today’s low interest rates, and tax breaks for ownership, it’s cheaper to rent. (And therefore one has to rely on substantial appreciation to make buying better.)

Also, if one were to buy such a property with 20% to rent it out, you’d only be able to cover about half your monthly expenses with the rent, so it’s highly negative cash flow.

My brother lives in the Boston area, and in surrounding working class towns (eg Framingham) you can get in duplexes and triplexes 1000 rent for 100k, a ratio of only 100. PRICE PER DOLLAR RENT IS A THIRD THERE WHAT IT IS HERE!

By: How the Rent vs Buy Analysis Is Bringing Families Back in Real Estate Market : The Real Estate Bloggers

Mon, 23 Feb 2009 16:12:28 +0000

[...] This reminds me of the 150 to 200 rule we discussed way back in 2005. The rule is that if a home was selling for 200 times the rent of the property, it was a bad investment to buy. So if you could rent a home for 1,000 a month that was smarter than buying it for $200,000. If the home price was $140,000 it made more sense to buy than rent. [...]

By: Why Prices Will Continue to Fall | Redfin Los Angeles Sweet Digs

Why Prices Will Continue to Fall | Redfin Los Angeles Sweet Digs — Mon, 07 Apr 2008 16:15:50 +0000

[...] meaningful measure is to compare a home’s selling price to its monthly rent. The conventional wisdom is that the price of the home should be no more than 200 times (150 times is better) the cost of the [...]

By: Sundream Estate

Sundream Estate — Tue, 02 Oct 2007 19:49:32 +0000

Our calculation here in Marbella, Spain is that we recommend the properties owner a ratio of 250:1 of the market price when they want to rent out.

By: Anon

Anon — Sat, 23 Sep 2006 14:40:24 +0000

Bay Area, California.

I looked at selling or renting our my home about 16 months ago. I thought there was a bubble so decided to sell. I sold for $679K. The rental price the real estate agent quoted was between $2,200 and $2,500. My guess was on the higher end. I have followed the price of my home since then by tracking the cost per square foot in the same PUD. The property went up by about $150K, and has now dropped back to about a rise of $100K.

So my number was about 270 at the time of sale, and is now about 285 allowing for a general rise in rent.

Don’t forget the cost of selling, and the savings on property tax repares, etc. if this were a business analysis, but this is about the property market being in a bubble.

By: Jason

Jason — Tue, 15 Nov 2005 03:24:50 +0000

I live in San Jose, Costa Rica. We’ve seen properties sit for years(!) for sale. The prices are simply too high for what you get.

Houses that sell for upwards of $300,000 can be rented for $2000 or less. Includes large lot, pool, gardens etc. That puts it at or below the 150:1 ratio. Not bad….

By: Melissa

Melissa — Mon, 31 Oct 2005 02:44:55 +0000

We rent a house in the way outer VA suburbs of DC. It was brand-new when we moved in. We are paying $2250 and it would sell for at least $550. Ratio of 244. But we are paying a lot for it, really, due to the limited area we wished to live in. Areas like Gainesville and Haymarket have some amazing rent ratios on brand-new McMansions.

By: S.weil

S.weil — Sun, 30 Oct 2005 03:42:35 +0000

Your VA example sounds terrible. I live in D.C. proper. I am owner/occupant, but rent the basement apt. for $1200/mo. I should be able to get $2500-$3000 for the rest of the house. Market price would be around $800K, so I am right around the magic 200 rule

By: John Doe

John Doe — Fri, 28 Oct 2005 20:20:55 +0000

I rent a home in Orange County for $2500 that would sell for $750K. That’s a 300! Homes in our neighborhood range from 720K to 895K, so $750k for a 2K sq ft 4br is a realistic fast-priced number and it’s still out of the ballpark.

By: David

David — Fri, 28 Oct 2005 14:40:57 +0000

The place we rent is a townhouse in Silver Spring, MD for 2,300 a month. A similiar townhouse just sold for 600,000 so that would be a ratio of 260. Ouch.