Quote:
Originally Posted by jmecklenborg
An investor generally aims for a 10% capitalization rate, however, some people have different definitions for cap rate. One pseudo-standard is to only assume 10 months of revenue per house/unit.
So if you pay $250,000 for a single-family home, to earn 10% you need to rent it for roughly $2,500/mo.
In the cheaper markets, it is (or rather was) possible to get 10%, for example $1,500/mo for a $150,000 home.
But in expensive cities like Los Angeles, where many homes are priced over $1 million, you're probably not going to be able to get 10%. Instead, you justify the investment in anticipation of appreciation. The huge risk, of course, is the property going down in value.
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I see. It seems rent is a very good business up there, specially as your bonds are paying 4.5%/year now. Ours are at 13.75%, 8 pts above inflation.
In Brazil, with taxes (income and real estate), administration comissions (usually 10%), you're expected to lose 3-4 months. Only in the hottest markets, like central and desirable apartments in big-ish cities you might expect to make more than 0.5% a month and only marginally.