Hey guys-
Lurking in this thread I love the discussion and it's really interesting.
I'm not really looking to get into landlording, purely because of a lot of the warnings I've read on this board (and horror stories) and I like the passiveness of the ETF's a lot. However, your discussion brought up a point (I belive Lan Mandragoran) touched on that I was mulling over a while ago.
The 1% rule (as any percentage rule) fails to take account of things that stay statically fixed as prices grow.
In other words, in a HCOL, you could be getting $3K or $4K of rent for property in a $700-900K Value. This is at a .5% or .6% Rule.
*however* repairs typically would be based on structures, and not necessarily directly correlated to the large value of the *LAND*. Does that follow? In other words, if you only clear a 1% profit on $10,000, that's a lot more money than clearing a 1% profit on $100.
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As an example - I've thought about my personal residence as a rental if I moved. I currently have a 3.375% mortgage fixed for 30 years ($1900 payment). I bought the house for $559,000, and the house is now worth much more than that. The house is a 3/2, 1260 square feet in Central Coast California, and I am relatively positive the house would rent for $3,000 - $3,500 per month pretty easily and our town has a less than 1% vacancy rate.
The PITI currently is roughtly $2500 per month, so that would be a monthly profit of AT LEAST $500 or $700, or $6000 per year, *without counting the leveraged equaity as Lan* had stated.
The general rules on maintenance are figuring AT LEAST $5000 -$6000 per year for my house (1% right?) but I have maybe put that much into the house since I bought it in 2011.
Am I way off base or missing something? Just curious.