Follow Us on Social Media

email icon rss icon linked.in icon google plus icon twitter icon facebook icon

Real Estate Rules… Do You Really Need Them?

by Aaron Yates on December 11, 2013 · 9 comments

  
Do You Need Them Rules

70% RULE, 50% RULE, 2% RULE…    FIND THE DEAL THE MONEY WILL COME….

Do you REALLY need to follow these rules and will they WORK?  I wanted to share a little about my opinion and experience with these rules.

Let me say this before you continue reading. I do NOT recommend you to follow my strategy. You need to be strong-willed, motivated, and driven to make investing work the way I have. I don’t claim or suggest in any way that my strategy will bring you the same results.

Do I follow these rules?

No! In fact, I never heard of these rules until I found BiggerPockets in July of 2013 and had already purchased my 4th property in 1 years time and in total my 5th property by June 2013.

Have I tried following these rules?

Yes, I have tried a few of them since I heard about them and so far they have NOT worked for me and the money has definitely NOT come when I find a good deal even when I am footing the rehab costs myself. So I still currently invest in what I can purchase and rehab myself, which are cheap rental properties.

How did I find good deals then since everyone says there are no deals on the MLS?

Well, the MLS is NOT dead. I simply look on the MLS, run the numbers and decide if it makes sense and provides enough profit for me to move forward.

Did you create an exit strategy?

Nope. I’m very aggressive and won’t take failure as an option. I go in with one goal and one goal only when buying a property. Granted I have had one project this year that the strategy did change during the project so I guess you can say I had an exit strategy on that one.

Do I follow everyone’s suggestions on BP?

No. But I definitely listen to people’s advice and if it doesn’t make sense to me and my market then I do what I feel comfortable with. In fact recently I took someone else’s advice on my last purchase instead of relying on my original plan and it didn’t work out as smooth as it should have. So instead of getting the property occupied in my normal month, it took 3 months. Point being, advice is great, but it may not work in your market if it’s from someone who doesn’t invest in your market.

But I have learned a lot about investing from BP members and other’s locally so don’t take this the wrong way.

What do you do if your estimates are wrong?

You adjust accordingly. Shift your rehab plans and strategy. Do some work yourself instead of contracting it out. Work through it and move forward.

Should I quit investing if a project goes over budget?

My first response to this, HELL NO!! My second response is “yes” if you can’t handle the stress that comes along with it and it’s taking your living money to move forward. I did not follow this suggestion myself in regards to quitting. But again, I have a different mindset. I’m very aggressive. I make it work one-way or another.

How much should I have in the bank before I invest?

There is no one answer for this. It depends on your plan and budget. I myself have gone broke on every project I have done in the past year. But I will not go into a project if it instantly breaks the bank just to do it. It usually breaks me by the end of the rehab. Then I bounce back.

Moral of the story?

You and only you can determine what you are capable of and what will work for YOU. You need to be able to make decisions for yourself if you want to invest in Real Estate. This is in my opinion, the number one important thing in investing if you want to succeed. If you constantly rely on someone else to tell you what to do then maybe you need to look into other things and forget about Real Estate.

Take peoples suggestions and experiences, including mine, for knowledge and not as a guaranteed way that will work for you to make money in Real Estate. If following these rules work for you then that’s great. But don’t let the rules dictate your direction in Real Estate!  In fact, if I followed the rental rules, I would be making LESS than what I am from my rentals by following my own rules and strategy.

So don’t get stuck in a rut by trying to run numbers solely based on “The Rules”. Use them as a guide and adjust accordingly or ignore them completely like I have. But that’s your own decision and I am not telling you to specifically ignore them.

Good luck in your investing endeavors and I will try to help in any way I can. Thank you for reading.
Photo Credit: ario_

Email *
  



{ 9 comments… read them below or add one }

Tom Sylvester December 12, 2013 at 3:50 am

Aaron – This to me was the most important line from the entire post – “Use them as a guide and adjust accordingly”. The “rules” (maybe better called theories) were developed because they tended to be true, but may not work in every case. The way I use these rules is to do the initial and quick analysis. In my buy-and-hold business, I use both the 50% rule and the 2% rule in my calculations. I actually have a spreadsheet that I type a few key data points into, and it runs a ton of calculations for me. Some of these are the rules that you refer to, and a bunch come from Frank Gallinelli’s book “What Every Real Estate Investor Needs to Know About Cashflow”. I have found all of the calculations to be valuable, especially since most are calculated pretty quickly.

So the rules are good guidelines, especially for people starting out, but the key takeaway is to ultimately own your decision and decide what “rules” to follow and what make sense for you business.

Thanks for the post.

Reply

Aaron Yates December 13, 2013 at 10:11 am

Hey Tom, thanks for the comment. I will have to look into that book. I still have a handful I haven’t read sitting on my dresser.

I shared this because it got me off track in my investing strategy, or lack their of really since I just buy what feels right to me, and I figured if I can get thrown off after already investing then a newbie could essentially never start investing due to never finding that magical deal.

Reply

Sara Cunningham December 12, 2013 at 6:10 am

Aaron I love your attitude. Like you I had never heard of these rules before I came across BP. That was only a month ago. Up to then I had been buying and either flipping or buying to hold using my own logic and what made sense for me. So far everything has worked out. I just adjust my original strategy as I go along if I need to. My last flip didn’t sell as soon as I wanted it to so I just decided to do a Lease to own option on it. At the end of the day I will end up making more money than if I had sold it outright. It also went over budget but I knew that was a possibility so it didn’t really hurt me. I buy low income property too so if I pay next to nothing for what I start with then I feel I can’t lose, and if I do I don’t lose a lot. I agree there is some fantastic information and advice on here, but you have to have the wisdom to only use what will help you personally and not take everything as gospel. Thanks for article.

Reply

Michael Sadler December 12, 2013 at 2:10 pm

Sara, I really liked Aaron’s no nonsense attitude. It’s awesome!

Reply

Aaron Yates December 13, 2013 at 10:20 am

Thanks Michael,

I write from my heart and experience. When I first was asked to write for BP I was leary of it since I have only been investing for a couple years and there are lots of people who have done this much longer than I have.

I told Brandon that I don’t sugar coat things and this may upset some people. He said that was ok. That’s basically what he liked about my writing as well. It’s real.

I’m just happy that some people like my blogs and they do help others. This all stems from the fact that I would have loved to have this help when I started but unfortunately I didn’t. I didn’t even know where to look for help back then.

Reply

Aaron Yates December 13, 2013 at 10:16 am

Hi Sara, we seem to invest using the same strategy. I didn’t even read my first real estate book until after I purchased my 3rd property. I just went with my gut. Now that I have a basis created from my properties I evaluate future possibilities based on my current numbers.

So in essence, I have created my own set of ‘Rules’ and percentages. But my rules won’t work everywhere and that is basically my main point of this blog. These rules won’t work in every market. And in that event, a new investor may never get started because they are stuck on these rules and can’t find that ‘deal’ that works.

In fact a new friend of mine loved this post for this exact reason. He is stilly trying to find his first property. He was basing EVERY property he looked at on these deals. Needless to say, he still hasn’t bought his first property. So even if he is the only one that this helped, at least someone found it useful… ha ha ha …

Reply

melodee lucido December 12, 2013 at 6:46 pm

Good article Aaron. What I love about BP is that we get all aspects of these “rules”. They have helped me in many cases but as you said, these are just jump-off points. There are many other factors. I hope many of the new investors read this!

Reply

Aaron Yates December 13, 2013 at 10:26 am

Thanks Melodee,

I’m glad this made sense for you. Some people tell me that I will never succeed with how I invest. But yet I have,and I can remember one person in particular who told me I won’t make it with how I do things. He still only has 3 properties after being in Real Estate for 20 years.

These kind of things are what makes me want to share. If people listen to that guy then they may never go anywhere because obviously he isn’t doing something right and can instill bad information and beliefs on a newbie if they are not mind strong.

Even seasoned investors try to instill their own beliefs on others and this too can cloud the mind of newbie or weak minded investors. I just think this is wrong.

Each person needs to be allowed to decide what type of investing they would like to do on their own. Let them listen to each of us and our investing strategies. Then they can decide what sounds good to them and what they would like to try.

Reply

melodee lucido December 13, 2013 at 11:42 am

You know what Aaron?? Your attitude is so refreshing!

I had people tell me also that my plan wouldn’t work—and maybe it wouldn’t work for them. I have some physical challenges so I sat down and got very clear what my lifestyle business would have to look like . . . then I designed the blueprint. So far it’s working great.

I do LOVE to talk with people that have a more experience than me or that are in other niches. I like to hear what has worked and hasn’t and what course corrections (some people call them mistakes) they have faced. I am always open to learning more and more.

Thank you for your contribution to this community.

Reply

Leave a Comment

Comment Policy:

• Use your real name and only your name in the field designated for your name.
• No keywords allowed as anchor text in the name or comment fields.
• No signature links allowed under your comments
• You may use links in the body of your comment, but it must be relevant to the discussion at hand, and not merely be some promotional link.
• We will have NO reservations about deleting your content if we feel you are posting merely to get a link without adding value to our discussion.
If you add value, but still post keywords, we'll use your comment, but remove your link and keywords.
• For more information about acceptable practice, see our site rules.

Want your photo to appear next to your comments? Set up your Gravatar today.

Previous post:

Next post: