Rules of Thumb vs Analysis. Where's the crossroads?

1 Reply

Good morning BP!

I've been inactive for awhile, both in the real estate realm and on BP, since my first deal fell through.  I'm getting my ducks in a row again to get going, but I've run into what may be considered analysis paralysis, but it's more focused on the difference between general rules of thumb and actual analysis when deciding how much to pay for a property.  At what point do rules of thumb become irrelevant and when is it appropriate to actually start asking for real figures when making an offer? 

For instance, I have my eye on a $115,000 triplex with some deferred maintenance that rents out for $1500 per month.  In my area, based on rules of thumb, that's a deal at 1.3% rent to cost.  But at what point do I say that $115,000 is a price I'm willing to pay, versus getting a pro forma or real numbers from the seller and digging into the numbers and finding out what the actual costs are, and ultimately how much I can pay?  Maybe I'm over thinking it, which I've been known to do, but I know my agent has better things to do than contacting every seller that has a property that meets my rules of thumb.  I'm just trying to figure out how everyone else decides what they can offer. 


I think the rules are just a quick way to qualify and then doing your due diligence. 

quickly looking over the mls/zillow/whatever, I can qualify the property by using a rule, and then diving in further to then see if it actually is a good deal. 

eg. looking at 100 houses, I see that most of them are in the 100k range, and will rent out for 1000. but then there is one that is going for 60k and the potential rental rate is 1000. that property warrants a looking into to.