Real Estate Rules… Do You Really Need Them?
70% RULE, 50% RULE, 2% RULE… FIND THE DEAL THE MONEY WILL COME….
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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_