Rule and guidelines
I have noticed alot mentioned about different percentage rules for various things such rent and buying a rental property. These percents are basic guidelines for determining values. Can someone share there guidelines and percentages so that I can use them in my research and how you came up with them.
Thanks
Justin,
One of the rules that is often talked about is the 50% Rule. That rule says that operating expenses for rentals run 45% to 50% of the gross rents. You can read in-depth about this rule in the landlording forum. There is a sticky thread about it.
For lower priced houses, I also use the 2% Rule, which just says that the gross monthly rent needs to be about 2% (or more) of the acquisition cost (purchase price + rehab) if they are going to cash flow properly. This is just a guideline that I use to screen properties.
I like to have $100 per unit per month positive cash flow from all my rentals USING REAL WORLD OPERATING EXPENSES (i.e. the 50% Rule).
Good Luck,
Mike
Regardless of any rule you use to evaluate a property, make note that NO rule is a silver bullet in that it is good for each and every property. You must learn to make adjustments and other considerations when applying any rule to your analysis.
I understand that you have to be flexible because every property is not the same. Thanks for you guys help. How can I determine operation expenses more accurately.
And I'm having problems searching for examples of contracts and letters. Can you guys help me with that also
Thanks again
How can I determine operation expenses more accurately.If you are investing in one or two unit properties, simply use the 50% assumption for your OE and you should be more than safe on your offers. Make considerations to age/condition of home and adjust offer according to rehab expenses.
And I'm having problems searching for examples of contracts and letters. Can you guys help me with that alsoNot sure what contracts and "letters" you are referring to. Be more specific and we may be able to help you.
Thanks again
Also, on the left side of your screen, there are many BP resources, including contracts to view. Check them out.
You may want to upgrade to a PRO account here on BP for added benefits if you are serious about learning and investing.