OBX Beach Living - Sarah Spencer
http://www.obxbeachliving.com/real-estate-information/information-for-real-estate-buyers/income-to-price-ratios.shtmlIncome to Price Ratios
This page explains the term "Income/Price Ratio". Sometimes called GRI/PP.
You may have heard agents on the Outer Banks use this term. It refers to the gross income divided by the purchase price. A general rule of thumb is: the closer the ratio is to 10%, the more "neutral" cash flow the property will be, give the standard expenses with an 80% LTV loan. There are exceptions, again this is a general rule. Homes with a 10% ratio are very rare. At the height of the market in 2005, investment properties with a 4.5% ratio were considered good deals. That was due mostly to the appreciation we had seen from 2000 up to 2005. In this current market, investors have accepted homes with a 7.5%+ ratio as "good deals." The standards are still rising as of September 2011. Any property with a ratio of 9% or better, unless there is something wrong with the house, will sell quickly. The link here is an example of a 9% ratio property.
Things that can influence cash flow:
Atypical down payment amount
If a home has an unusually high insurance premium (homes in 4-wheel drive area, COBRA zones)
Unusually high HOA fees
Unusually high maintenance fees