What are the top 5 guideline any RE investor should know(1% rule)

Question

Are there more guidelines like the 1% rule that every RE investor should know before investing? If yes, can you please share them?

Filipe Pereira · Answer

Here are two on the tenant screening side of things @Anthu Tam

1. Use "NET" aka "take home income" to qualify tenants. I usually aim for 3x the rent.

2. Don't rent to tenants who have evictions on their record.

Ali Boone · Answer

I would absolutely not include the 1% rule in any top 5 guidelines. If you're looking for guidelines of that type... like 5 of that kind of guideline... you're essentially wanting enough guidelines to tell you how to succeed or be profitable, which completely skips actually knowing how to profit. If that makes any sense.

If I were to come up with 5 guidelines I would say every new investor should know, I would say: (these cover all strategies, not just rentals)

1.     Know exactly how you expect to profit. Sounds obvious, but few people I hear starting out have any clue how they actually expect to profit on a property.

2.     Be able to intelligently explain to someone why you think a certain property would make a good investment... before you invest in a property.

3.     Only run actual numbers, not estimated! There will only be a couple numbers that have to remain estimated. Everything else- get actuals. And ditch those 50%, 1% and 2% guidelines. Actual numbers.

4.     Don't pursue an investing strategy because it sounds great or someone told you that's what you should do. Take the time to learn about all of the strategies, and dive into which ones actually accomplish your goals and fit your skill set, personality, interests, etc.

5.     Understand, in depth, the following for any strategy: what makes that strategy successful, what makes it unsuccessful, what are the risks, what are mitigations to those risks, and how do I run the numbers?

I realize none of those may be what you're looking for, but my guess is you haven't gone through any of those learnings yet. Once you do, and you select a strategy to pursue and start learning, then you can learn about things like the 1% rule and what is means and how to properly use it. But if you're trying to start your investing career just going off a random splooge of guidelines, you're going to be in for a wild ride.

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Christopher Hill · Answer

70% Rule is a good one to know for flipping. Although it is a little harder nowadays to find deals at that formula, it is still a good foundation for analyzing a property. Also depending on the area and asset class you're invested in, the rule may need to be adjusted as it doesn't work in all markets.

ARV = 100k

Repair cost = 25k

100k x 70% = 70k - 25k (repair) = 45k suggests most an investor should pay for a property.

Drew Sygit · Answer

@Anthu Tam you'll only get as far as your network takes you

Anthu Tam · Answer

Thank you all for your responses and guidance. These are very helpful.

Noah Chappell · Answer

@Anthu Tam by posting on this forum, you've shown you've already stumbled upon the source of as much info as you'll need to become very knowledgeable. At this point you really need to be a sponge. Try to read and understand pretty much every book by Brandon, listen to every BP podcast episode, and include some other real estate podcasts as well in the rotation. Eventually you'll find 80% of the core information will be repeated, then you'll know you've got your mind around the fundamentals. At this point get clear on your niche, timeframe, goals, and jump in. Avoid shiny object syndrome. Ex if multifamily buy and hold is what you're after, go for 2-4 unit properties from the beginning, and stay away from single family, etc. Only flip for profits to fuel you're multi family pursuits. Good luck.

Mike Cosmah · Answer

I would recommend doing a little more research on what type of RE you want to invest in, the location or market you're interested in or that supports the strategy you want to use, the asset class you want to or are capable of investing in, etc. After knowing these things you can narrow down the "thumb rules" that you want to use. Just make sure when you decide to use a thumb rule, it's based on the above information. Talk to brokers, bankers, property managers, other RE investors that are in the market you're looking at. Then use the information you find to come up with you're own thumb rules that match what you've found in the real world. Thumb rules are typically only used for very quick, high level analysis and can be dependent on many of the above criteria so you'll get many different answers from different people. Here is a post where the first reply by @Bill Hampton has many of the resources available right here on BP.  https://www.biggerpockets.com/...

Good luck!

Anthu Tam · Answer

Thanks, Dave for the reply- Can you recommend some good books/blogs/podcasts that I can read/follow?

What are the top 5 guideline any RE investor should know(1% rule)

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