Robert.soufer, Renter in

How to calculated rent to investment ratio?

Asked by Robert.soufer, Thu Mar 7, 2013

I saved some money to buy a condo for investment. I am near retirement and wondered if I bought a unit outright for 1 million in midtown, Chelsea or other desirable, how can I estimate the rental return for which I would subtract the expenses to estimate my money return which I would for retirement ?

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Nice, detailed, comprehensive answers from Elena and Jennifer. So the answer probably is around 3%. It doesn't appear that either calculation accounted for vacancies, though. Though hopefully it won't occur this often, investors factor in 1 month of vacancy per year, reducing your overall income by 8%. Thus, your projected rental return would be slightly lower.

Frankly, though, a 3% (or 2.5%) return on $1 million doesn't strike me as outstanding. You should be able to do better, either with a different real estate strategy or a different investment strategy.

Also, check with your accountant on the tax implications. It could be that the tax benefits would increase the overall benefits of such an investment. Or--depending on your situation--not. You do need to know that, as well.

Hope that helps.
0 votes Thank Flag Link Sun Aug 18, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
Determine the rental price of the house. This represents the actual rent you receive for renting the property or the current market value of the monthly rent payment for the house.
0 votes Thank Flag Link Thu Mar 14, 2013
1MM would buy you an nice 1BR, perhaps with a den or a junior 4 that can be converted into 2 BRs, or some areas even 2BR. You can rent it for about $4,000 a month. In some areas, such as upper west side you can still find some condo with a very low maintenance and tax - under $1300 -1,400 a month. I just looked up a specific condo on UWS for 1MM that I will use as an example. It was rented for $4,200/month - so your gross income would be $50,400. Maintenance and tax are $1181.89/mo
or $14,182.68. Your net rental income can be appr. $36,217/year. Minus management fees/or rental commissions if you have any. $36,217 divided by the purchase price of 1000,000, you will get about 3.6% rental income.

There are different strategies to maximize your rental income - some areas are popular for furnished corporate rentals and you can get a higher rent, etc. In general it should be expected from 3-5% annual operating income. You should keep in mind that in Manhattan properties appreciate in value and on resale you should also get appreciation income, so you have to take it into consideration when calculating your overall return on investment.
0 votes Thank Flag Link Thu Mar 7, 2013
My company is the biggest Japanese Realtor in USA, and we closed 1,500 rental deals in 2012. Most of our clients are expats from Japanese major companies, so companies pay the broker fee and rent. The relocation term of Japanese expats is from 3 years ~ 7 years. I also could help you find perfect tenants, then you would be worry-free on your investment for 3 years ~7 years.

Ming Gu

1010 Ave of the Americas, 2nd Floor, NY 10018
Cell: (917)517-7499
Phone: (212)379-5059
0 votes Thank Flag Link Thu Mar 7, 2013

The investment ratio is easy to be calculated: Ration = (Rent - Tax - Maintenance) / Price,
but the point is to find a good location with strong rental needs and stable & good tenants to reduce the risk to rent default and vancancy.

Since many financial firms are moving out from low Manhattan to Midtown,
my suggestion would be purchase a newly built condo in Midtown or Upper West. The new condo with 10 years or 15 years of tax abatement would increase your investment ratio a lot. The new style condo would be easy to be sold when you need cash in couple of years.

Ming Gu

1010 Ave of the Americas, 2nd Floor, NY 10018
Cell: (917)517-7499
Phone: (212)379-5059
0 votes Thank Flag Link Thu Mar 7, 2013
Here's a general breakdown that will help you...of course the values will have to be tweaked specifially for your unit. Chelsea will get you approximately $3000 for a monthly 1 bedroom rental.

Current rent $3500 x 12 months = $42,000 - 3-5% vacancy and collections ($-1200) = $40,800 EGI (Effective gross Income) minus - $15,000 Op Expenses (taxes, insurance, common charges, repairs)
= $25,800 NOI (net operating income)

Purchase price: $1,000,000

Cap Rate: 2.58%

Of course, all these numbers are ballpark figures. If I can help you for your impending investment purchase, please feel free to reach out to me.

I am also a working appriaser specializing in Manhattan, so I can give you an added value that most Manhattan real estate brokers cannot.

You now have the opportunity to search approximately 20,000 exclusive listings, representing the entire database of residential listings available through the membership of the Real Estate Board of New York (REBNY).

These are the most accurate listings you can find in NY because they come from the brokers themselves; there is no bait and switch, no duplicates, and no opens; and are updated every hour. You will find all pertinent information such as common charges and tax information, which you will need as part and parcel for a complete picture for your real estate investment.

Jennifer Chiongbian
SVP/ Associate Broker
Rutenberg Realty NY
0 votes Thank Flag Link Thu Mar 7, 2013
Hi Robert,

You would have to see what the going market rental rate for a unit like the one you are planning to buy is. You can do this by looking at the current ask for rentals that are on the market right now. Make sure that you are looking at the same size, floor, views, type of layout, building amenities etc Also look at how long the units have been on the market (too long is not a good sign, as the rent might just reflect what the owner would like to get, not what the actual market value is).

You should also look at what has just been rented (and how long these units where on the market---the shorter the better, as that would mean the unit was well priced and went quickly).

Then you should also not forget to calculate a loss factor as you will not have the unit rented 365 days/year. You should also look into if the condo has fees for you as an owner, or specific rules regarding subletting. Look at the buildings approval process, and how long that process might be.

Another way to do this is to work with an experienced broker who knows the market and can guide and advice you through the process.

Filippa Edberg-Manuel
Associate Broker, CNE
TOWN West Village
0 votes Thank Flag Link Thu Mar 7, 2013
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