June 25, 2021
The 1% rule-of-thumb has historically been followed by many landlords and property investors to determine a good investment. Essentially the rule states that if you buy a home for $500,000, you should see monthly rent equalling $5000, or 1% of the purchase price. However, in today’s booming GTA market, this number is harder to attain. With prices reaching record highs every year in the GTA and rent increasing only gradually, if at all, the 1%rule may not apply when analyzing a property’s investment potential.
Due to this shift in balance, property investors have created a new rule which allows investors to analyze if a property is a sound investment or not: the 0.25% rule. With the average single room home price in2021 within the GTA being $605,000, this rule allows investors to meet the average rent in the GTA of approximately $1500. The rule also is seen within2-bedroom properties; for example, with GTA prices of such properties averaging$770,000, one can meet desired average monthly returns on rent of $1900.
In the current direction toward which the GTA housing market is moving, the 0.25% rule seems to be the way to go to determine if a property is a good investment and meets the demand of the current rental market occurring within the GTA.
With adopting the 0.25% rule for landlords, whether it being in search for your next rental property or wish to adapt your rent prices to what the current market is, this will greatly effect 2 things. One is that you and Solace Solutions will be able to find tenants much quicker and easier.Since this a new rule of thumb, many investors/landlords are still using the 1%rule on their investment properties and aren’t adapting to what the current rental market is, driving possible tenants away with high rent amounts. With utilizing the 0.25% rule for your rental property, rent prices will not only meet industry standards, but will also look much more attractive to the eye of tenants who are looking for a home. As well, using the new 0.25% rule will allow you as an investor to analyze whether a property is worth its value or not. With the numerous expenses which come with maintaining a property, it is important that rent amounts are able to cover expenses such as mortgage payments. You don’t want to buy a home that is overvalued, where you have negative cash flow based on mortgage payments and other fees. Now, with the 0.25% rule, landlords can analyze a true properties value and understand what they are able to charge to a tenant, being able to see if rent is able to cover all expenses and you the landlord won’t have a negative ROI.
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