70% Rule for Rental Properties?

[Ray Bailey]

Quick question from a Rookie Investor in Denver... When buying a house to be used as a rental, what are the guidelines regarding how much to spend on the property? Obviously, we want to purchase as cheap as possible, but is there something similar to the "Fix and Flip 70% Rule" for rentals? For example, an investor should pay 70 percent of the ARV of a property minus the repairs needed. Does that same rule apply to investment properties?

[Travis Sperr]

Agree with @Bill S. but will add...

The way I was able to acquire a handful of rentals quickly was using that 70% model. I would buy with hard money - with the loan funding 70% of ARV - Fix it up and instead of flipping it for the profit, just refinance it at 75% LTV and start cash-flowing. The BRRRR model before it had such a catchy name! It was much easier to do this in 2008-2013 but that is not to say you cant do it now - all depends on you.

Of course you can look at the 1 and 2 percent rules to measure the property's performance, the lower your basis the better off you are. You might accept lower than 1% if you are into the deal with little money down and the cash on cash is really strong.