Benchmark Realty, LLC
Great question. It looks like your answers are both geared toward renting an investment property and/or buying an investment property.
Our answer is for determining the optimal monthly rent amount. If you have a loan on the property as opposed to owning it free and clear there can be a big difference in what you charge. We know people who charge less than market rent for their rentals, and they can because they don't have a loan payment. However, those who have loans must often meet a lender's requirement of a 1.25:1 (one point two five to one) DSR or debt service ratio. This means if your debt service (principal & interest amount due each month on the loan) equals $1000, you must collect $1250 or 25% more than the debt service each month. Some lenders only require a 1.2:1 ratio, (20%.)
In order to meet these lender requirements - take your principal and interest payment amount and multiply it by 1.25.
If the property is to cash flow - be sure to calculate a monthly amount for property taxes, homeowner's insurance, vacancies and a maintenance allowances. Otherwise you may wind up breaking even, but not actually making any money.
Hopefully this answers your question. If you were needing to know how to calculate a purchase price for a rental property feel free to contact either of us.
Connie & Sheila
http://www.ConnieandSheila.com (rental site)
http://www.ConnieandSheilaTalk.com (podcast site)
Rates depend on the market, which each of these agents has alluded to, however if you are attempting to run numbers and back into what price you should pay for an investment property, I strongly suggest you buy the brand new book "Hold". You will learn so much! Nothing like buying a piece of investment property and miscalculating the expenses as well as the rents. Real estate is the quickest way to build wealth, as well as one of the most satisfying, if you have the temperment and skill required.
co-founder, Keller Williams Realty, Nashville
If you are a Buyer, ask your agent to run a report for current rental prices and the year's rental prices, for similar properties. This will allow you to run numbers ahead of time to see your potential income.
The end of the year is a great time to get a deal done. Many of your expenses for closing are tax deductible.