How much is rental property worth based on income?

FillSpectre

If you were getting a rental income of 31K a year what would be the recommended maximum price for a mortgage?

Lex Luthor

FillSpectre wrote:

If you were getting a rental income of 31K a year what would be the recommended maximum price for a mortgage?

what kind of house would fetch €2500/month in rent, then get a guide price for it from an estate agent

FillSpectre

Lex Luthor wrote:

what kind of house would fetch €2500/month in rent, then get a guide price for it from an estate agent

Who said a house?
I really just want the sensible formula for poperty investemnt. I can't remember the general recommended rental return versus mortgage. I know you should aim for 10-20% profit on redevelopments. A friend was to reverse estimate the value of their property not use market prices.

Well, if I thought I could get rid of the principal of the mortgage through rent in about 20 years I would look at a place.

In commercial property would think that any place where you get back 5% of the cost through rent should be looked at - know of a case lately where a fellow really wanted a place and spent 5m for 100k pa rent or a return of only 1%, but that was an instance where he wanted the property more than applying strict business sense.

Bluehair

Deleted User wrote:

Well, if I thought I could get rid of the principal of the mortgage through rent in about 20 years I would look at a place.

So about €400k? (20 year term, 4.5%, interest plus capital)

Supercell

Bluehair wrote:

So about €400k? (20 year term, 4.5%, interest plus capital)

Seems about right, money would be better invested elsewhere though 4.5% is half what the long term stockmarket average though.

FillSpectre

Longfield wrote:

Seems about right, money would be better invested elsewhere though 4.5% is half what the long term stockmarket average though.

Is there not a major difference in the fact that after 20 years there is no mortgage so the rent is profit minus minimal expenses. With other investmentents it is just return on your money where as a property is return on some body elses money and after the loan is paid out the profit increases dramatically?

The_Conductor

FillSpectre wrote:

after the loan is paid out the profit increases dramatically?

Yes, but as your mortgage deminishes, so too does the interest you are paying on it- which would initially make up a very large deductable expense. I.e. the further you go along the greater the portion of the income which becomes taxable.

FillSpectre

smccarrick wrote:

Yes, but as your mortgage deminishes, so too does the interest you are paying on it- which would initially make up a very large deductable expense. I.e. the further you go along the greater the portion of the income which becomes taxable.

Yes but eventually you own the property so the majority of rent will be profit

jdivision

If it's commercial property it's usually a mortgage at a LTV of 70 per cent. The yield ie rent is around 5 per cent so the investment is worth around e620,000 and mortgage should be around e424,000. if you've got a long lease term with a good covenant you'll be able to borrow more than that and you can always regear in a few years to release the equity if you want

lomb

Deleted User wrote:

know of a case lately where a fellow really wanted a place and spent 5m for 100k pa rent or a return of only 1%, but that was an instance where he wanted the property more than applying strict business sense.

must have been graftone street? either that or a significant upwards rental review coming up or other development potential?

i think commerical property goes for about 4% yield these days. yields are under pressuret tho as prices continue to rocket.at 31k in rent the property is probably worth 650-750k, unless theres rental review coming up, it has development potential or its a trophy property.

jdivision

lomb wrote:

i think commerical property goes for about 4% yield these days.

That's for prime office and retail properties in Dublin, industrial is more, hence I went with 5 per cent

lomb

lomb wrote:

must have been graftone street?

No, town in Kerry.

lomb

jdivision wrote:

That's for prime office and retail properties in Dublin, industrial is more, hence I went with 5 per cent

u are correct, industrial is much higher risk, potentially poorer covenants, much higher risk of higher supply with unlimited industrial zoned land, and lower demand thru industrialisation in china etc. higher risk of company failure also.
retail is better value imho. offices are WAY too dear at the moment.

lomb

Deleted User wrote:

No, town in Kerry.

orbital83

FillSpectre wrote:

If you were getting a rental income of 31K a year what would be the recommended maximum price for a mortgage?

Value = (Rack Rent ) / (Rental Yield)
Where rental yield = Risk free nominal yield + Property risk premium

i.e. Value = (31000) / (0.05) = 620,000 if you're looking for a yield of 5% pa

Or you could use a discounted cashflow approach...

Actuaries are just so useful!!