Want to Get into Real Estate Investing? You HAVE TO Know these 3 Terms | Ep. 104
Dec 13, 2024
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Dive into the essential rules of real estate investing! Discover the game-changing 1% rule to gauge rental income effectively. Learn about efficient cash flow analysis with the 50% and 70% rules for smarter property evaluations. Explore quick estimation techniques to streamline your property search and make informed decisions without the hassle. Plus, find out how virtual assistants can boost your productivity in managing investments!
The 1% rule helps real estate investors quickly evaluate rental property viability based on the correlation between rent and total investment.
The 70% rule aids property flippers in determining acceptable purchase prices by focusing on after-repair value minus renovation costs.
Deep dives
Understanding the 1% Rule
The 1% rule serves as a fundamental guideline for evaluating rental properties. It suggests that the rent should equal at least 1% of the total investment in the property, which includes the purchase price and any necessary rehabilitation costs. For instance, if a property costs $120,000 and requires an additional $60,000 in renovations, the total investment would be $180,000, necessitating a monthly rental income of $1,800 to be considered viable. This rule helps investors quickly assess whether a property has the potential to generate positive cash flow, although it's important to consider local market conditions and other factors that may affect rent-to-price ratios.
The 50% Rule for Managing Expenses
The 50% rule highlights the typical expenses associated with owning rental properties, emphasizing that approximately half of the rental income will be consumed by operational costs. This rule accounts for various expenses such as property management fees, maintenance, vacancies, and capital expenditures that arise over time. For example, if a property generates $2,000 in monthly rent, the expectation would be that about $1,000 of that would go towards these costs, hence revealing the true cash flow situation. This understanding is crucial for investors to avoid misconceptions that can lead to disappointing financial performance.
Applying the 70% Rule for Flipping Properties
The 70% rule is a key principle for those targeting property flips, indicating that investors should aim to purchase properties for 70% of their after-repair value (ARV), minus renovation costs. For instance, if a property has a potential ARV of $100,000 and needs $30,000 in repairs, the investor should aim to offer around $40,000. This strategy allows investors to filter through numerous deals quickly, focusing their efforts on those that meet this criterion and thus likely offer a profitable return. Although this may not apply uniformly across all markets, it serves as an essential filter for those involved in property flipping.
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🎥 DESCRIPTION
Starting your journey in real estate? In this episode, Brandon Turner and Cam Cathcart reveal three essential rules of thumb every new investor should know. These quick strategies will help you analyze properties faster, avoid costly mistakes, and focus on deals that work for your goals.
What you’ll learn in this episode: • How the 1% Rule simplifies rental property evaluation. • Why the 50% Rule is crucial for understanding expenses. • The 70% Rule for quick deal analysis in flips or BRRRRs. • A bonus tip: Craft your Crystal Clear Criteria to save time and find winning deals. • and SO much more