is there any science behind..

dblennon

I was just wondering if there is any science or general international references to the 14 times annual rent, that I see alot on here.

I ask because the majority of 2bed apartments in portmarnock (beside dart) are renting for about 1000 - 1200.

that would average out to a valuation of 180,000 - 200,000 for most of the apartments which is 100,000 less than the current asking price.

also a 200,000 mortgage is right in my range and I would love to live there how likely is it that this valuation will ever bear out?

personal opinion is fine but If anyone has any factual info on the
14xannual;rent that would be great

AARRRGH

It is a rough guide if you are looking for a fair return on your investment. For example, I know a lot of companies get bought for 12 times their annual profit. It's sort of the same thing...

ronbyrne2005

dblennon wrote: »

I was just wondering if there is any science or general international references to the 14 times annual rent, that I see alot on here.

I ask because the majority of 2bed apartments in portmarnock (beside dart) are renting for about 1000 - 1200.

that would average out to a valuation of 180,000 - 200,000 for most of the apartments which is 100,000 less than the current asking price.

also a 200,000 mortgage is right in my range and I would love to live there how likely is it that this valuation will ever bear out?

personal opinion is fine but If anyone has any factual info on the
14xannual;rent that would be great

Yeah 14 times rent infers a yield of around7% which would be a good retuen for an investor in this risky asset. Property is riskier than bonds for example where your capital is safe so investors in a rational market would require a few percent over risk free bond rate. So based on historic and global norms a return of at least 5-7 % is necessary to cover finance and make a return. Theres tons of literature out there. Google Shiller and property bubble.

ZYX

To be honest it is mostly guesswork. A return of 5% (ie 7% less 2% expenses) plus capital growth is a pretty good return for a pretty low risk investment. Very few shares would offer that kind of return and are much riskier.
Renting and buying are in balance.It is all about supply and demand. At what point does it become more ecconomical to buy rather than rent. At 14 times rental income it would make more financial sense to buy than rent but it probably makes more sense at 15 times rental income or 16 times. It is very unlikely in this country that average property price will be 14 times rental income.

ZYX

ronbyrne2005 wrote: »

Yeah 14 times rent infers a yield of around7% which would be a good retuen for an investor in this risky asset. Property is riskier than bonds for example where your capital is safe so investors in a rational market would require a few percent over risk free bond rate. .

But with property you get a return plus potential for capital growth. With bonds you only get a return. A comparison with shares makes more sense.

Gurgle

dblennon wrote: »

I was just wondering if there is any science or general international references to the 14 times annual rent, that I see alot on here.

I believe its the average rental return over an average term for an average property in an average location in the western world.

It also takes into account long-term interest rates and inflation.

So, yes there is some maths there but only as a general long-term indication. To use it in comparing the right-now asking prices and rents is a bit much.

subway

ZYX wrote: »

But with property you get a return plus potential for capital growth. With bonds you only get a return. A comparison with shares makes more sense.

indeed, thats the risk element, as prices can also fall.
quite dramatically as can be seen now.

dny123456

subway wrote: »

indeed, thats the risk element, as prices can also fall.
quite dramatically as can be seen now.

Much the same as shares as ZXY said.

pigeonbutler

The reason prices are a bit crazy in Ireland is that we don't have a culture of long term residential letting (unlike much of Europe). Therefore people pay the inherent value of the house (14 times annual rent) plus a premium x for the additional utility they get from owning their own home. It's not entirely rational. But it is what happens. If some economist could come with a rule of thumb for calculating x we'd find it a lot easier to figure out the "correct" level for house prices.

DJDC

http://www.irishtimes.com/newspaper/breaking/2009/0731/breaking64.htm

Astonishing stuff. House prices decline getting worse than ever. Houses in commuter belts dropped by 2.8% in one month. I can assure you apartments in Portmarknock will be 200k in a few months but the question will be can you afford it. The reason for all these declines is multiple: property taxes, income taxes, people losing their jobs everywhere, political instability, banks not lending etc. etc. I reckon there is a 90% chance of prices going back to 2003 levels and 50% of hitting 2000 levels. Amazing