MMM rents his house for $2,400 per month?

[Baylor3217]

why would someone rent a house for this much for several years?

2) I believe the house cost about $400,000 which is an over 7% cash on cash return. Not too shabby if my numbers are correct about rent and purchase price

[arebelspy]

why would someone rent a house for this much for several years?

2) I believe the house cost about $400,000 which is an over 7% cash on cash return. Not too shabby if my numbers are correct about rent and purchase price

1) They'd do it because that's the going rental rate in the area in which they want to live, and they don't want to buy.

2) Okay?

[Emilyngh]

why would someone rent a house for this much for several years?

Because they want to live in a house in an area and decide that it's better for whatever reason than buying.

Not quite as high, but we used to pay $1700 a mo to rent a total POS house in a crap neighborhood.  One of the best financial decisions of our lives.    We knew we didn't want to stay for long (stayed 4 years) and buying would have worked out to have been horribly financially in that we would have lost a ton in buying/selling such expensive houses in the current market.   If we had a child at the time, we might have decided to live in a slightly nicer/safer area, where we would have paid around that, and still would have been able to save a fat stache every month due to the high paying jobs we were able to have by living where we did.

[Another Reader]

IIRC, this was a spec house MMM built with a partner.  MMM subsequently bought the partner out and elected to rent the house out rather than sell into a declining market.  He self-manages, and the area has a lot of new homes that are among the more expensive houses in the area.  The cost to build or the price at which he bought out the partner are not relevant to the return on current value.  I can't recall if he mentioned a mortgage or HELOC, which would affect the ROIC.

[hs]

My husband and I will keep renting a condo for a while. I have lived in it for 5 years so far. We hope to FIRE in the next five years, and then live abroad for a while. We don't like maintenance or snow shoveling, although I do love gardening. Because it's just the two of us, renting allows us to live with much less square footage than most starter homes in the area (850sqft). So our rent per square foot is not cheap, but we use a lot less square feet! For us, renting is financially smart.

[totoro]

Easy.

1.  You can afford the rent, but don't have a down payment.

2.  You are working in an area temporarily.

3.  You think the market is going to crash and want to wait.

4.  You are planning to build your own home and don't want the transaction costs of owning first.

5.  You are divorced and don't qualify for a mortgage on your own but want to keep your kids in the same neighbourhood.

Lots of other reasons.   Where I live 2400/month is quite normal for a modest SFH.

[SDREMNGR]

I have several homes that we manage that rent for $4000/month or so.  The homes are $1 mil plus homes.  I have one potential client with a home that is $4 mil mansion and I figure that the market rent is $8-10k per month.  The higher the home price gets, the less you get for rent per $ of house value. 

The client wants to buy with today's low rates and rent it out for 2 years then move in.  So people pay lots for rent.

[Another Reader]

I live in Silicon Valley, but at the south end.  Market rent in my neighborhood for 4 bedrooms, 2.5 baths is $3,500 to $4,000, depending on age, size and amenities.  If I put my house up for rent, my voice mail box would be full in a couple of hours.  Per the public version of the MLS, there is ONE rental listing in my zip code, a condo in a retirement community, for $2,500.  Supply and demand at work.

[SnackDog]

I've wondered the same thing!  We've been fortunate so far to have our primary residence rented for well over $3000/mo since 2007.  It is a 1965 mid-century modern in unimproved condition. We are on our third renter and have never had a single day gap - I suspect we could charge more based on how fast we have rented to very qualified renters.  First two loved the area and moved out when they bought homes nearby.  Third  has vowed to raise her girls in the house through end of high school.  She has a good job but also receives a large monthly alimony payment.  She took a long trip last summer and pre-paid 4 months rent to avoid any hassle.  We love the house and look forward to moving back one day, perhaps after the renters have paid off the mortgage. We would like to renovate the kitchens and baths, etc.

[Grateful Stache]

Boulder is expensive.

[rocklebock]

Last time my rental property (2 bedroom condo) was vacant, prospective tenants were bidding up to $100/month over the $2400 rent we were asking. Buying similar in the same neighborhood would be $300-$325k.

[Nords]

2) I believe the house cost about $400,000 which is an over 7% cash on cash return. Not too shabby if my numbers are correct about rent and purchase price

Before expenses. 

It might be more realistic to use the number on Schedule E, or the amount of after-tax money he'd have from liquidating the property. 

[Another Reader]

My guess is he is netting about 5 to 6 percent on cost, considering tax, insurance, and materials cost for repairs and maintenance as expenses.  It's in a newer area, so there might be an HOA.  Self-management is simple, he says there has been no vacancy IIRC, and he does all the repairs himself.  The good and bad news is the Longmont market has enjoyed significant appreciation. The yield on cost is enhanced by the appreciation but the cap rate at current value is a lot lower. 

[William]

MMM has so much money he can basically do whatever he wants.  I like how this is what caught your attention...

[Baylor3217]

MMM has so much money he can basically do whatever he wants.  I like how this is what caught your attention...

What does this mean?

[arebelspy]

MMM has so much money he can basically do whatever he wants.  I like how this is what caught your attention...

What does this mean?

Purple monkey dishwasher.