Is there any relationship between the value of a house and the rent of that house?

more specifically if a house has a rent of £600-£650 how much would it sell for?

ye. but the yield is product specific (ie location , size etc) and there’s a discount for liquidity.

tell us more of the property and I can help

No, not that clear

Rental value is market dependant and generally a crap 3 bed goes for very similar to a nice 3 bed etc.

I’ve paid loads for crap house to rent and got some bargains that I could never afford to buy. Best look at local market for similar houses on rent/buy pages

No. Our house was valued for sale ridiculously low but the rental value is really high. So we’re looking at renting.

Stoner, Cheltenham, 2 up 2 down victorian terrace.

It is the house i live in/rent and just trying to second guess what the seller wants, not the price they are asking which is 130k and IMO way over the top.

Usually rent and house values are pretty related – expensive area to buy is also expensive area to rent.
It can vary a bit if there is a lot of demand (student rented houses = cheap area, high rents possibly) or the opposite.
The thing is to know rental prices and house prices and work out if it works, or if there is an area/building type/market that produces a better return.
So we have a flat that cost £100k, in a place with few longterm rentals (all else is holiday homes), so it turns a 11% rental return, and has been unlet for 1 week in three years as I wanted to decorate between tenants…

ahem, you know that “are you an expert” thread samuri…I have some great ideas about network security…. 😉

Right…

the relationship between rental and capital values is called the yield. The level of that yield is such that it compensates the asset holder for among other things: liquidity, loss of alternative income, deferral of expectations of rental growth, cost of ownership, allowance for voids, capex expectations etc etc.

To a certain extent some of these are consistent across the UK, in other areas (such as expectations of rental growth or voids) they will be market specific.

The thing is that residential sales are driven by the owner occupier market NOT the rental market, unlike the commerical world. So the sale price of a house even if let will usually be the same as the owner occupier value of that house. The exception is when selling a portfolio of let houses in which case their is usually a discount to the owner occupier market but it’s carried by a commercial operator because they can stomach that discount for a number of reasons to dull to go into here.

Suffice to say, if you want to buy the house you rent, you end up paying the price that comparable houses have sold for in your local area. Just because it is rented, doesnt change the value for one-off assets because the investor and owner occupier markets trade in the same space.

And finger in the air rule of thumb take rent x 12 x 1/6% for investment value of resi rental which in your case comes to £130k 😉

stoner, thanks, that confirms to me where a to pitch an offer.

house in street in better nick rent currently being advertised as is for £595pm, next door slightly bigger house sold as repo for 110k, their other neighbour vacant for 10months sold for 106k, also repo. the only non repo in the terrace sold in the last year twice? first 106k, second 130k.

There is no correlation between rental figure and purchase price.
A 2 bed terrace down the road is on the market for 20k.Spend 10k.Rental income gross about £400 per month.Thats a high yield because you’ve bought it at a low price.Neighbour has a big 3 bed semi for rent.£500 per month is all the market will stand but the sale price is 125k.Thats a low yield and probably wouldn’t appeal to an investor.
The crucial figure is your buying price if everything else is equal.
With a low yield you may be pinning your hopes on a climb in prices in the property market to add some percentage points to the yearly “yield”.

Why not speak to your landlord if you’re thinking of buying?
He might accept a lowball offer if it saves him having to have the place vacant for a number of months while he sells it. If you know what similar properties have gone for you can negotiate. Estate agents tend to estimate high values to get the vendor’s business.
FWIW, I reckon that £130k is about normal for a £600-£650 /m property.

joeegg – Member
There is no correlation between rental figure and purchase price.

I hope your advice is not for sale joe…

To a certain extent some of these are consistent across the UK, in other areas (such as expectations of rental growth or voids) they will be market specific.

And they will change over time. In London over the last couple of years rents have been rising faster than house prices. In some areas there’s particular demand for certain sorts of property – around me 2 bed flats go for a premium and the increment up to 4 bed houses is not as much as you might expect. However, rental price per room up to 4 bed doesn’t seem to change that much so yields are probably higher on the houses.

Nothing scientific about that study but suspect the answer is ‘it depends’

Stoner is right:

To a certain extent some of these are consistent across the UK, in other areas (such as expectations of rental growth or voids) they will be market specific

Translation: Yes there is a correlation between rental and purchase price, except where there isn’t.

mlc – succinct and almost right.

There are greater correlations between ratios of rent to value for similar assets. and lesser correlations for less similar ones 🙂