Rules of thumb

6 Replies

Just curious to know what rules of thumb everyone uses to quickly evaluate properties... I'm aware of the 2% rule regarding rent, the 50% rule regarding monthly expenses, and the 70% rule for pricing. Any rules of thumb for quickly estimating rehab costs or closing/holding expenses? Is there anything I'm not thinking of that I'm missing?

Thanks!

Shoor

Shoor, most would tell you that closing / holding expenses combined are going to be close to 10% of the sales price. In regards to rehab costs, "quickly estimating" is probably not a wise idea. You're probably asking for a $/sf type figure, but these can be WAY off.

Check out J Scott's book on Estimating Rehab Costs (available on the BP site). It will walk you through the fundamentals and give you a much better idea than a $/sf number. Best of luck.

Thanks Brendan... appreciate your candor. I'm new to this so it's really valuable to know if and when I'm going down the wrong path. I'll definitely check out that book.

No problem Shoor. I wasn't trying to be difficult or short, it's just that estimating rehab costs (and doing it incorrectly) is the quickest way for someone to lose money on a flip. If you can get good estimating rehab costs (the right way) you're not running much of a risk trying to buy low and sell high. I wish you well!

Of course when you've been doing it long enough you won't need any rule of thumb. Your intuition will tell you whether it is worth running the numbers or not.

Hoping to get there one day, Robert :)

Hey I'm interested in this too more for creating a screener than for actual analysis. Are there more rules or ratios people use regularly?

I understand they can be deceiving but just curious.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here