Rules??

Question

In all honesty, I have zero education, or people to mentor me in my life toward financial success and my money goals. I live in a world where money earned is money spent even if it is beyond means, so forgive me if I seem ignorant.

But,
What the hell is a 2% rule?
How about a 50% rule?
If they are rules, or guidelines, they are obviously counted as the norm. If this is the case, is there any other "rules" i should invest time into learning?

So far I have been very lucky as all my properties have been a respectable amount  below market value in good areas where cash flow is easy. I purely attribute this to knowing neighborhoods, and not being impatient. I have never heard of these rules. As my portfolio begins to grow, I would assume my cash flow per unit should as well, so if these rules will help facilitate....

Thanks,

Bill Gulley · Answer

Bill, after reading those links, you should have the basics about them.

But such rules are hardly "rules" something that is a rule, like don't ever fire your deer rifle toward a house, something that should always be followed, these are not those kinds of rules, let's say good suggestions, a quick way to view a deal without cranking out real numbers.

IMO, you should never buy a property based soley on any rules but rather look at financials, the market, tax matters and condition more closely.

Don't let numbers scare you, RE math is not hard, but the approach you take needs to be understood. Be conservative, don't over estimate income and don't under estimate expenses.

Let the numbers rule along with the opportunity in reality, not what you are hoping for. :)

Bill Bob · Answer

Fantastic fellas.
Much appreciated.
Those links will be on my todo list this evening while the wife watches one of those dreaded real housewives of whatever county shows!
Thanks,

James Vermillion · Answer

Bill, I had never heard of these rules before I joined BP either, and I doubt many others had either.   While they have the name "rule", they are really general guidelines.  As you probably know, there are very few right or wrong answers in this business, just a lot of different ways of doing things.  These guidelines were designed to provide a quick and fairly accurate way to analyze properties.  Here are some links that should help you better understand them:

https://www.biggerpockets.com/forums/52/topics/17612-where-does-the-5-rule-come-from-

https://www.biggerpockets.com/forums/88/topics/69534-2-rule-and-50-rule

https://www.biggerpockets.com/forums/52/topics/76155-help-with-the-50--2-rule