Friday, July 11, 2008

Rule of 15?

Ever hear about the "Rule of 15"? Neither have I, until I read this piece on CNBC. Google it, and you find only this article (at least in terms of a Rule of 15 that applies to real estate), so this is one of those "Your Mileage May Vary" (YMMV) things you find on the Internet. Take it with a grain of salt.

If the rule was stated, it seems to say that the purchase price of a house should be approximately 15 times the yearly rent for the equivalent house. If the house is going for an appreciably higher multiple, then it may not be a great buy. Appreciably lower? Then it may be a deal.

You can also apply this to your current home to see if--and about how much--it may decrease in value during the current burst of the real estate bubble.

Interesting, at least.

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