Friday, December 02, 2005

Buy, Rent,Sell

In 1989 my brother gave me a book by Lionel Needleman called Buy, Rent, Sell. It was an eye opener of a book for me. Even though I was already in the real estate business I hadn't really taken a serious look at long term planning, and that's what Buy, Rent, Sell taught me.

Since Property Management
that time I've learned a lot, and I disagree with many of the things Needleman says, but I still find myself coming back to the book time after time. More than 15 years after it was published it can still teach. Some of its lessons are a direct result of its vintage.

Needleman uses a price-to-rent ratio to value rental properties. His range for 1988 is between 75 and 175 times the monthly rent. I remember applying this metric when I first read the book, and it worked pretty well in this area. I would find houses in Maple Ridge selling for 125 times monthly rent, and some bargains in Vancouver going for 100 times rent. Now the numbers are more in the 200s!

The interest rates that Needleman talks about are instructive as well. In '89 computers were not as nearly widespread as today, so Needleman included several mortgage tables in his book. The interest rates range from 8% to 20%. He considered that a reasonable mortgage rate range apparently. How things have changed!

One other intersting stat that Needleman shares is a comparison of property value increase in Markham/Unionville between 1982 and 1987. Values there rose 142%, but townhouse rents only rose 85%. I suspect the same could be observed during most rising markets. My gut feeling is that property values always rise faster than rents, but that rents eventually catch up.

I recommend the book, if you can find it. Buy, Rent, Sell, Lionel Needleman, published by Collins Publishing, Toronto.


Blogger paula said...

What an article! Congrats! Looks wonderful, I'll have to go out and buy it so I can read it asap!

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11:56 PM  

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