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Articles on finance, debt and loans
Updated on Jan 11, 10
Created on Jun 16, 08
Category: Business & Finance
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David Johnson's List: Loans Debt and Investment
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Jan 11, 10
Bringing it home: The 150 to 200 rule
If a home is selling for 150 times the monthly rent (or less), it's generally a good deal. If it's selling for more than 200 times the monthly rent of a comparable property, you're better off renting. I ran this little test for a house near Fool HQ in Alexandria, Va. House A has five bedrooms and 4.5 baths, and it sits on one pristine acre. You can rent House A for $3,900 per month. Based on comparable sales, this home would sell for approximately $2 million. Therefore, it's selling for 512 times the monthly rent! Put another way, if you mortgaged the whole $2 million at 5.42% over 30 years, your monthly payment would be more than $11,000.
If it seems like something doesn't add up, you're right.-
Bringing it home: The 150 to 200 rule
If a home is selling for 150 times the monthly rent (or less), it's generally a good deal. If it's selling for more than 200 times the monthly rent of a comparable property, you're better off renting. I ran this little test for a house near Fool HQ in Alexandria, Va. House A has five bedrooms and 4.5 baths, and it sits on one pristine acre. You can rent House A for $3,900 per month. Based on comparable sales, this home would sell for approximately $2 million. Therefore, it's selling for 512 times the monthly rent! Put another way, if you mortgaged the whole $2 million at 5.42% over 30 years, your monthly payment would be more than $11,000.If it seems like something doesn't add up, you're right.
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