what returns are small investors expecting from single family home rentals ?

Assuming no professional management fees, leveraged or unleveraged
In Market Conditions - Asked by Chuck M. - Aug 16, 2010
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Answer(s)

tin c.
Owner/Investor
San Jose, CA

8%

Aug 16, 2010
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Steve H.
Developer
Colorado Springs, CO

Hammers Construction, Inc. works primarily with commercial real estate. The only residential real estate we currently have is a 70 acre land sale.
I do apologize I cannot answer your question.

Aug 17, 2010
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Rob B.
Chandler, AZ

Chuck M.....
It is extremely hard to provide a specific answer for your general question. What did the investor pay for the property? What does the investor expect the property to do for him or her? Where is the property located and what will the market bear in rental price? How flexible is the investor in tenant selection as far as credit worthiness goes? What condition is the property in? These are just a few of the questions.
Is 8% a good return? It may be. However, 10-12% or more is even better. Also, when computing the ROI is the investor taking into consideration any tax benefit derived from depreciation.
I believe the honest answer to this is an investor should expect the highest return the rental market will bear, while achieving as much assurance of stability in income as possible.
Rob Baird, CA RE Lic. #544165 (One of the oldest, active licenses in CA)
951 515-5855

Aug 18, 2010
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Cstore X.
Broker/Agent
Germantown, TN

I think Robert's answer is the most comprehensive... but if you want a swag, here's a couple ways to ballpark it:
- is the investor directly investing or just financing (more risk should increase the return)
- is the investor leveraging their money (by financing the property)
If he/ she is a direct investor and using financing, pro-forma ROI numbers can consistently get above 30% (at least in my market).
But like Robert said- lot's of unknowns...

Aug 19, 2010
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Cstore X.
Broker/Agent
Germantown, TN

I think Robert's answer is the most comprehensive... but if you want a swag, here's a couple ways to ballpark it:
- is the investor directly investing or just financing (more risk should increase the return)
- is the investor leveraging their money (by financing the property)
If he/ she is a direct investor and using financing, pro-forma ROI numbers can consistently get above 30% (at least in my market).
But like Robert said- lot's of unknowns...

Aug 19, 2010
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David C.
Los Angeles, CA

Thank you for your question about rates of return on single family rentals. Please be advised that any answer given is pure speculation without more information about the prospective investment. I suggest evaluating each deal individually based on a combination of factors including rental income, possible capital appreciation, and location.
Please feel free to use the calculators on my website to evaluate your options.

Aug 23, 2010
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Alex M.
Broker/Agent
Glendora, CA

Most small investors would be happy if they clear enough to cover PITI and expenses.

Aug 23, 2010
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Beth W.
Claremont, CA

I'm in Southern California. many small investors want to see a minimum of 7%.

Nov 30, 2010
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WC Equity G.
Owner/Investor
Tampa, FL

Chuck,
Rob makes some great points: "Is 8% a good return? It may be. However, 10-12% or more is even better. Also, when computing the ROI is the investor taking into consideration any tax benefit derived from depreciation." Your local market will dictate what rate of return is satisfactory, or above average; however, adjustments to a declination of market values should still be valued. Our firm is able to provide returns over 20-40% -- NET -- in local Florida cities. This is a timely opportunity.

Jan 3, 2011
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Pete A.
Broker/Agent
Indianapolis, IN

for an income property (one that you don't expect to make a substantial return through increases in the value of the property), I would suggest a 12% return on cost (not cash). For a vacation or property that you would expect to see a high level of appreciation, it is more complicated, but most would not expect to "feed" the property (with negative cash flow) more than the amount or value they would get from personal use.

Feb 5, 2011
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