The ratio between rent and property cost - Rent to Value

Ratio to Value ratio
Post 1 value from 3
When we invest in a rental property, some of us are looking for high security and an increase in value. Therefore, the appropriate assets will be in middle-class B areas characterized by a high level of prices relative to the lower class, and therefore the level of yields will be lower.
A significant portion of our community invests in properties in Area C, which are characterized by lower prices and higher yields (and with higher risk levels, but this is the subject of a separate post).
In this post I would like to focus on the ratio between the monthly rent and the cost of the property in Area C as a tool for making quick decisions about the profitability of investment in the asset in terms of yield only.
Our aim is that the ratio of rent to property cost will be at least 1.5%.

Let's take 3 modes:
Ratio of 1%
Ratio of 1.5%
Ratio of 2%
If rent 1,000 $
And the cost of the property 100,000 $
The ratio is of course 1%
And the gross return is 12%
(12 * 1,000) / 100,000
According to the 50 Act, expenses will remain with 6% approx.
This is too low yield for C areas of course.
Let's take the second extreme ratio 2%:
If the rent is $ 1,000
What should be the cost of the property?
1,000 / 2% = $ 50,000
And the gross return is 24%
And net return of 12%
This is a very good return for Area C
If considered the intermediate state of
An 1.5% ratio was found for
Rent of 1,000 $
Gross yield will be 18%
And net return will be 9%
This is a real yield for an asset in C or C + areas.
Then remember for 1 return ratio 6%
For the 1.5 return ratio 9%
For the 2 return ratio 12%

The Rent to Value ratio is one of the tools in the toolbox available to us as risk managers in for-profit investments.
Because buying properties is the easy part. Manage the risks of lack of occupancy, problematic tenants, high maintenance expenses, greedy management companies that have been the part of real life and here is reflected in real risk management.

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