Hat tip to stephen for sending this over, from zero hedge – check the comments at this link too:


This is a vexing question for millions of Americans. There was a time when most people had a reasonably good idea of what they could sell a property for.  There were enough purchases and sales to create comps. Not any longer. Homes that have been foreclosed on come to the market at distressed prices. This is happening in every neighborhood across the country. When one property sells at a distressed price it influences all the properties around it.

So what is residential real estate worth today? The answer to that question is, “About 15 times the annual rent”.

RE professionals are going to write me and say that this simple calculation is wrong. They will say that the number is lower. Possibly as low as 12 times rent. They might be right. However in areas of the country that I watch the 15 times rent number is a pretty good indication of value.

Based on this calculation the following rent/price guidelines can be determined:















It is still difficult for a homeowner to make a reasonable estimate on what the rental value of a property will be. But I have found that most people have a better handle on this number than they do on what their home can be successfully marketed for.  There are regional considerations for rental values, by and large this formula works well for metro versus rural properties as a valuation tool.

This analysis creates a tremendous problem. There are very few homes for sale at 15 times rent. The only ones that come up for sale in that price range are those that are in foreclosure and are being sold by bank lenders. We know that there is demand for properties when those conditions are met. That has been proven in just about every area of the country.


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