Is the best "buy" in real estate here a long-term lease?

One veteran developer believes so. The developer, who insisted on anonymity, said that many rental prices of fine homes in McLean and other prestigious residential areas are lower than might be expected for such expensive dwellings.

"If you can get a five-year lease with a constant rent for the first two years and moderate (less than 10 percent) increases through the next three years, you're getting what I consider to be a real buy in today's market of exceptionally high-priced houses," he said.

He said, for instance, that he knew of a $200,000-range house in northern Virginia that could be rented for $900 a month. "Just look at the classified section of your newspaper and you'll find a number of houses available for rent from $400 to $900 a month, depending on size and location."

Indeed, a look at those classified ads recently showed that a five-bedroom house in Chevy Chase was available for $800 a month, a two-bedroom dwelling in Georgetown for $800, a three-bedroom town house in Reston for $360 and a house in a well-regarded Montgomery County subdivision for $695.

If there seems to be an inconsistency in this view of the rental market, it's simply that the escalating prices of houses in this area has been so marked in recent years that the rental structure has not kept pace.

It once was axiomatic that the gross rent from a dwelling should be at least 10 percent of value in order for the owner to handle upkeep and make the mortgage payments or get a reasonable return on an investment.

In recent years individual investors have been purchasing houses and condominium apartments for future appreciation, which has been averaging 15 percent annually in many areas. However, many owner-investors find it impossible to rent those properties for what normally might have been regarded as reasonable rents.

An old realty maxim indicates that a house costing $100,000 should bring an annual gross rental of at least $10,000 (10 percent). That would mean a monthly rent of slightly more than $800. However, the owner of what now is a $100,000 house might be fortunate to rent it for $600 or $700 a month.

Therefore the owner must feed the property to the amount of $100 or $200 a month to handle the mortgage payments and upkeep. In today's high interest market, it can be figured that it costs at least $100 a month to amortize every $10,000 of mortgage.

Considering that an occupant has to pay the same utility costs as either an owner or a tenant, this illustration also indicates that a tenant might live in the same house at a lower monthly cost than an owner.

The owner-occupant would have a down payment invested, but would also have the benefit of tax deductions for taxes and interest -- plus the prospect for long-term gain when the house is resold.

Why are landlords willing to take less than what might be considered a reasonable rent on those dwellings? That's the name of the real estate game, 1979 style. The owners take tax depreciations on houses that are rented. A negative cash flow may be a plus in terms of income tax deduction for anyone in a high income bracket.

Meanwhile, the investor-owner is betting on more real estate inflation (called appreciation by professionals) to make a profit in the future. It is assumed that the house worth $100,000 today will bring $150,000 in the market by 1985. In the 1970s, some owners have seen the prices of their houses double in less than six years.

Although rents have not kept pace with the inflation in housing prices, they are increased when the private market permits. A house that brings only $600 in rent today might be priced at $900 in 1985, unless today's tenant gets a long-term lease that spells out modest increases.

In many cases, owners of rental houses prefer long-term tenancy on the assumption that the occupant will take good care of a house if it is a semi-permanent residence.