The 6.1% Rule

[Jake Kucheck]

Let's assume I'm working in a vacuum, where there is no appreciation, no debt, stable rents, and the 50% rule applies. My goal is to be recapitalized on my initial acquisition + rehab in three years or less from the net rents received.

That would mean my equation would look like this for a property that makes sense to buy:

.91*[(R*36)/2] > (Acquisition + Rehab)

So, after doing some number crunching on some real life examples (assuming 9% property management fees and the 50% rule), it would appear that dividing the rent amount by .061 I can come up with my max purchase price.

Anyone care to shoot some holes in this?

[Steve Babiak]

If I could find properties that rent for $1000 and be all-in at $16.4K - well that's a no-brainer in most cases (war-zones would still be excluded). I suspect such properties will be rather difficult to find.

BTW - the PM is "built into" the 50% rule, so no need to make the adjustment with the 0.91 factor there.