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Monday, September 6, 2010

"How much does that home rent for?"

How to Predict (House) Rental Rates

Want to know the best predictor of what a given home rents for?

Figure out when the owner bought.

If they bought between 2004 and 2008 -- especially if they didn't put much down -- they want an arm and a leg.

Or more accurately, they need an arm a leg.

That's because they bought at the peak.

And since they bought at the peak with little down, they're now underwater.

Which means they can't refinance to take advantage of today's shockingly low rates.

So, to cover their monthly "nut," they need to collect a hefty monthly rent check.

Financial Wherewithal + Patience

At the other extreme, there are other would-be "home landlords" who bought decades ago, and now owe little or nothing on their homes.

Some are earning essentially zero on their retirement savings (remember those shockingly low rates); others are convinced that the market will be higher in 2-3 years than it is now.

In either case, they're looking for a renter to tide them over till the markets -- investing and housing -- improve.

Throw in a renter who might be a family friend (or a friend of a family friend), and suddenly such homes can be rented at very attractive prices.

So, what are market rental rates?

Somewhere between these two extremes.

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