Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y
Why?
Let me give you an example of why I strongly dislike (actually worse) these "rules of thumb".
Here's an example of a property. Based on the above rules of thumb, what conclusion as far as buying or not buying, can you draw from these numbers...and this is an actual property I just ran across:
ARV = $160k Repairs = $20k 70% Rule: ($160k x 70%) - $20k = Offer = $92k 1% Rule: Offer x 1% = Monthly Rent = $920/m 50% Rule: Rent x 50% = Expenses (not including mortgage) = $460/m
Projected CF: Rent - expenses - Mortgage = CF => $920 - $460 - $350 = $110/month * * Subtract for any "fudge factors", like vacancy, etc...
With this info, what would you do next?
Here are the actual numbers: ARV: $160k AP/Offer: $160k (offer full AP) Rent: $1800/m Expenses (wo/mortgage): $575/m Mortgage Pmt: $611/m Actual CF: $614/m
There's only one rule of thumb that is valid...and that's the carpenter's RoT that says, "don't hit your thumb with your hammer".
Great example. Thanks for sharing your numbers. Here to learn a bunch!
What do you do to sift through so many potential properties for sale?
I analyze markets, meaning I analyze all the properties in that market proactively...before they are for sale, based on the sold comps and the rental comps. Then, when a property is listed for sale, I already know what to look for as a maximum asking price. If the property is less than that price, I make an offer, if it's over it, I walk down the street.