That’s a good question and opinions will vary.  The short answer: supply and demand.

The longer answer: we have a limited supply of rental homes and an app. 94-96% occupancy rate (recent anecdotal statements indicate it may be even higher). As a result, landlords can charge more for their properties.  But even this is as incomplete answer — it’s also a function of the economics of the purchase.

Say a landlord is looking at purchasing a home for app. $135K as an investment property (single family home).  This is a 3 bedroom home that will rent on average for $1106.  However,  the investor must put around 20% down due to the home not being owner occupied ($27,000).

Assuming $1100 a year for homeowner’s insurance and $650 for taxes, the mortgage payment on this home will be $717.38 (using the interest rate that I just recently closed an investment on).  If the home rents for $1106, the spread month to month for the investor is $388.62.  This doesn’t account for property management (10% or $71.74 a month) or maintenance (1% over a 10 year span) — call it $1350 for this home in a hypothetical year (or $112.50 a month).   Thus, the $388.62 margin is reduced to $204.38.

That’s the anatomy of a basic deal for an investor owned home and I hope illustrates part of the core reason behind pricing…and this was a $135K home.  The margins change as the price goes up without breaking the next rent price point (e.g., a $145K home won’t necessarily rent for more than an $135K home).

Looking to buy or sell in Colorado, I’d be honored to earn your business!  Call Rob @ 719-440-6626

**This is not financial advice, just a practical analysis of a purchase.