In a balanced market monthly rent is about 0.8% price.
Here on Capitol Hill, the 3BR/3BA condo across the hall from mine is renting for a whopping $2,700. But that's still only 0.43 percent of the $625K selling price. That's about half of the ratio quoted for a "balanced market."
Cash on cash, that's a measly 5.2 percent annual rate of return -- which you could get with zero hassle and zero risk in a CD. But who has $625K in cash? Borrowing $500K at six percent costs about $2,300 per month in interest for the first five years or so. And if the owner pays down the principal the monthly payment jumps to $3,000. Then there's the $329 condo fee, $479 a month for real estate taxes, insurance and the miscellaneous costs of upkeep.
Yeah, yeah, I know that a rental property throws off some serious tax deductions. And in theory, the property will appreciate. But net, net, net I estimate this owner is lucky to make four percent after tax. That's about what you'd get in a municipal money market fund.
Just goes to show you how bubblicious real estate prices are here.