2% vs 80% vs 50% I need help

1 Reply

Hello so I have been hearing a lot of conflicting info about these % rules that we use and was hoping to see if someone could clarify between each one and what is one that I should maybe lean on more in property evaluating. Thanks to all of you!  

Hi Lorenzo,

You need to provide a bit more detail in what you're looking into evaluating.  Are you looking for a buy & hold property or a rehab property?

Buy and hold people generally tend to use the 1% rule (although 2% would be better).  Ie; Total investment cost = $100K, then 1% = $1K per month rent MINIMUM to even consider the property.  More is better obviously.

Rehab properties would generally follow a different rule. You want to buy at 70% or below ARV (After renovation value) _AFTER_ the renovation costs. Ie; ARV is $200K, Repairs cost $50K, 70% of $200K = $140K - $50K, which means an offer of $90K or less for that house.

50% pertains to the buy & hold properties.  It's just a rough estimate of what you will spend on monthly operating costs from your rent collected. Ie; $1K per month rent = $500 per month towards taxes, insurance, management, capital expenditure, electricity, heat, sewer, water, lawn care, etc.  But does _NOT_ include cost of money (mortgages, etc).

Hope this helps a bit.  Keep browsing the site, I'm sure these %s are ALL over the place.

Have a good one!

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