Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
I am trying and trying to subsribe to the 50 % rule but am unable to do so. I live in a small town most of the year and the Black Hills arent hit as much as the rest of the nation. Houses listed here arent selling low enough to make the 50% rule work. Houses that rent for 550 to 600 sell for 75000 to 100000 I am not sure what to do in this case. Keep praying abviously and keep looking.
Real Estate Investor · Elkhorn, WI · Member since 2008 · 453 posts · 104 votes
17y
Originally posted by Travis Elliott:
I am trying and trying to subsribe to the 50 % rule but am unable to do so. I live in a small town most of the year and the Black Hills arent hit as much as the rest of the nation. Houses listed here arent selling low enough to make the 50% rule work. Houses that rent for 550 to 600 sell for 75000 to 100000 I am not sure what to do in this case. Keep praying abviously and keep looking.
You say that houses "listed" here aren't selling low enough. That leads me to believe that you're just looking on the MLS for houses. If that is the case, you should hit the streets. Join your local REI club and network. Develop a relationship with a realtor in the hopes of getting some pocket listings. Tell everyone you see that you buy houses. Take an add out in the newspaper. Looking for rental properties on the MLS is kind of like buying a used car from a dealership...they almost always want retail price. That's not to say that you can't find them on the MLS...but you need to do more leg work.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
The 50% Rule is not defunct in South Dakota or anyplace else. The 50% Rule simply says that throughout the United States the operating expenses run 45% to 50% of the gross rents.
You can certainly pay $100,000 for a property that rents for $550 if you want to. Just realize that your going to be losing a lot of money!
I also agree with Rich. Finding deals that will cash flow is not easy in ANY market. In my area of Ohio, the vast majority of rentals sell with gross monthly rents at 1% of the purchase price. Of course, that's exactly why the vast majority of newbies fail in a short period of time.
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
17y
Originally posted by rich23s:
Originally posted by Travis Elliott:
I am trying and trying to subsribe to the 50 % rule but am unable to do so. I live in a small town most of the year and the Black Hills arent hit as much as the rest of the nation. Houses listed here arent selling low enough to make the 50% rule work. Houses that rent for 550 to 600 sell for 75000 to 100000 I am not sure what to do in this case. Keep praying abviously and keep looking.
You say that houses "listed" here aren't selling low enough. That leads me to believe that you're just looking on the MLS for houses. If that is the case, you should hit the streets. Join your local REI club and network. Develop a relationship with a realtor in the hopes of getting some pocket listings. Tell everyone you see that you buy houses. Take an add out in the newspaper. Looking for rental properties on the MLS is kind of like buying a used car from a dealership...they almost always want retail price. That's not to say that you can't find them on the MLS...but you need to do more leg work.
-Rich
I use the MLS but not only the MLS. I talk to people all the time I call upon several Realtors and I talk to people everywhere from the bar to the grocery store to the neighbor who is trying to sell me the up down.. There arent any clubs to join here like I said a small town of 6500. It just seams like if people are going to sell they ae going to use a realtor and ask market price.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
My reply was totally serious. I've moved three times with my day job. From MO where I grew up to Houston. Then to Bakersfield. Now to Denver. Its not at all uncommon to move either because your company wants you to or because you're offered a better job somewhere else. Why is this such a foreign concept for real estate investing? If you're living in a place where there are no deals, and you really want to make a living with RE, move somewhere where you can find deals.
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
17y
""Look into your local tax sales and you may find some homes cheap enough to suit you. ""
Funny story . I have already went to the court house to look into tax deed sales and they said they havent have had one sell in over twenty years. Sounds strange to me.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
17y
Originally posted by Jon Holdman:
My reply was totally serious. I've moved three times with my day job. From MO where I grew up to Houston. Then to Bakersfield. Now to Denver. Its not at all uncommon to move either because your company wants you to or because you're offered a better job somewhere else. Why is this such a foreign concept for real estate investing? If you're living in a place where there are no deals, and you really want to make a living with RE, move somewhere where you can find deals.
I couldn't agree more. Rules are like a measuring tape. The tape doesn't change just because what your measuring does. If you don't want to move, you don't have to be a landlord. You can do anything you want to make money. There are a couple guys on TV who make a lot more money building motorcycles than I do land lording.
Real Estate Agent · Cheyenne, WY · Member since 2009 · 205 posts · 51 votes
17y
The 50% rule is NOT defunct in SD. I live in Portland, OR and I have one rental, soon to be acquiring more in Rapid City because it's MUCH easier to get cash flow there than in Oregon! The duplex I have was purchased for $100K and rents for $1270 (was renting for $1150 when I bought it 2.5 years ago). I think you should look into multi-family and possibly look in Rapid City if Sturgis isn't working out for you. It's only half an hour away.
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
17y
There another option other then moving. Be a real estate investor, but don't be a landlord. Invest out of state and find a good, reputable management company. BTW, the 2% rule is a good concept and a safe way to evaluate a property but not a law. If you abide by the following rules: You have other income so you don't rely on the rent to make ends meet, and that income can also cover unexpected maintenance and repair expenses. This concept is working if you treat your properties as if they were your 401K. Make sure, though that your PITI are covered.
Real Estate Agent · Cheyenne, WY · Member since 2009 · 205 posts · 51 votes
17y
I think there is a HUGE difference between meeting the 2% rule and getting the rent to cover you PITI payments. For example, with the duplex I mentioned in SD, my PITI is $620/month. The rent is $1270/month, so I have $650 left over for maintenance, repairs, vacancy, replacements reserves, and profit. In addition, I'm paying down my mortgage principle. To me this is an outstanding deal; I'd love to have 5 more like it. However, it doesn't come close to meeting the 2% rule because I paid $100K for the property; it would have to rent for $2K per month! If I were to buy something that just covers my PITI payment, this property would only have to rent for $620, but I would be losing tons of money on the repairs and when the property is vacant. So now I'm confused with the huge discrepancy in the advice being given.
Personally, I like to use the 1% rule: The rent minus owner-paid utilities should be at least 1% of the fixed-up cost of purchasing the property. That seems to give me a good enough margin, but then again I've only been doing this for 2.5 years, so maybe I'm just not experienced enough to know what all can go wrong. I'm also not relying on the rent to make ends meet, but I do only want to purchase properties that will "pay for themselves" and at least break even under the worst-case assumptions.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
17y
Originally posted by Mariah J.:
I do only want to purchase properties that will "pay for themselves" and at least break even under the worst-case assumptions.
Nothing against you Mariah, but point out a difference in perspectives here. If something else is your primary source of income, then breaking even is a goal you can afford to shoot for. If the property's basically a 401k to you that you can sell at any point within the next 20 years in an up market, then you can apply this generally without any problems. My primary income has been rental income, supplemented with some insurance work. When you are actually living off rentals, you can't afford the 1% rule. I don't own a single property that performs at less than 3%. I can't afford to because I feel the bleeding immediately. This is why people like myself and Mike are and continue to be so adamant about the 2% rule.
Real Estate Agent · Cheyenne, WY · Member since 2009 · 205 posts · 51 votes
17y
That makes a lot of sense. Maybe I need to start looking in Indiana! Got any to sell me? I'll settle for 2.5%. :-)
I'm amazed at the difference in "investing" strategies I see. I have friends who buy where the rent they think they can get = the PITI payment and they think it's so cool that "the tenants pay the mortgage" without thinking about how much they lose on vacancies and repairs. They think I'm hard-core (and unrealistic) when I refuse to buy something that doesn't meet the 1% rule. Then I come to this board and see there are people getting 3%. It's been very educational.
Real Estate Investor · Elkhorn, WI · Member since 2008 · 453 posts · 104 votes
17y
Originally posted by Mariah J.:
That makes a lot of sense. Maybe I need to start looking in Indiana! Got any to sell me? I'll settle for 2.5%. :-)
I'm amazed at the difference in "investing" strategies I see. I have friends who buy where the rent they think they can get = the PITI payment and they think it's so cool that "the tenants pay the mortgage" without thinking about how much they lose on vacancies and repairs. They think I'm hard-core (and unrealistic) when I refuse to buy something that doesn't meet the 1% rule. Then I come to this board and see there are people getting 3%. It's been very educational.
Tell your friends that I will find them almost unlimited 1% properties out by me. I can get 100's of them. In fact, I'll sell mine (turn key with renters) to anyone if they're using the 1% rule. I've got some ready to go! :lol:
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
You can do rent = piti or the 1% Rule if you've got a bunch of money to put into the deals and if you don't have a large portfolio. However, you can not do it with a large portfolio unless you're already rich! Losing money is not my idea of running a business!
Investor · Fort Wayne, IN · Member since 2009 · 391 posts · 257 votes
17y
3 things for Travis.
1. It is not the 50% rule that is in question but the ability to find a property at a rent to price ratio that will be profitable.
2. As already stated, look for properties outside of your area. I am fortunate to live in an area where the rent to price ratios make owning rentals a profitable business.
3. I don't manage my own properties. Before I looked at a single property, I interviewed property managers first. I would recommend that you find an area where price to rent ratio's are favorable and then develop a support team starting with a good property manager.
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
17y
Originally posted by MikeOH:
You can do rent = piti or the 1% Rule if you've got a bunch of money to put into the deals and if you don't have a large portfolio. However, you can not do it with a large portfolio unless you're already rich! Losing money is not my idea of running a business!
Mike
I beg the differ, Mike. I have good friend who's not rich and has 12 properties all of which are 1%. They are spread out in Phoenix Arizona, San Antonio,TX, and Nashville, TN. He is doing just fine. The trick? Rental is not his primary income. It is all 401K properties.
Real Estate Investor · Myrtle creek , OR · Member since 2008 · 343 posts · 13 votes
17y
Originally posted by Mariah J.:
That makes a lot of sense. Maybe I need to start looking in Indiana! Got any to sell me? I'll settle for 2.5%. :-)
I'm amazed at the difference in "investing" strategies I see. I have friends who buy where the rent they think they can get = the PITI payment and they think it's so cool that "the tenants pay the mortgage" without thinking about how much they lose on vacancies and repairs. They think I'm hard-core (and unrealistic) when I refuse to buy something that doesn't meet the 1% rule. Then I come to this board and see there are people getting 3%. It's been very educational.
Hi Mariah, I'm from Roseburg Oregon and began investing in Indiana a couple years ago. I certainly wouldn't be buying in todays market using the 1% rule. Indiana meets the 2% and better rule easily. If you have any questions feel free to shoot me an email. My address is in my signature. Jim
Real Estate Investor · Member since 2009 · 14 posts · 0 votes
17y
my thoughts have changed pretty significantly on how i want to handle buying properties over the past 5 months. Im just starting out, i bought my first property a year ago, and its a 1% property and it does fine. Its only a small fraction of what i want though.
I decided i need more properties. I have scouted possible MLS properties and i cant break 1-1.5% returns.....earlier in this thread some one said "your not doing enough leg work, you should hit the streets"
i still have a ton to learn, some one please school me on how to find properties that are having some serious returns.
i have ambition & drive flowing out of my ***, but my way of finding properties is one dimensional....MLS is my only source at the moment.
my co-worker is my realtor, what do you mean by pocket listings? stuff that hasn't hit the market yet?
ive spent SO much time already scouting MLS properties and i am realizing that is not the way to find them, most properties at the price im expecting the buyer to take would only be 1-1.5%
Real Estate Investor · Bergen County, NJ · Member since 2008 · 390 posts · 72 votes
17y
Tom,
Are you apart of your local REIA? You have to find the properties that are not listed on the MLS - where the owner needs to have his property sold yesterday.
Marketing and networking are what you need to do to find these properties.
You also need to know what a good deal is in your market so that when you do talk to owners, you know at what price to lock the property up at
Read through the posts/blogs/articles on BP and you will find specific ways... marketing to absentee owners, bandit signs, telling everyone at your REIA who you are and what you do are some ways to get your name out there.
Madison, MS · Member since 2008 · 53 posts · 5 votes
17y
Tim,
3% on all your properties? Thats outstanding...Please share how you do this.
I can get 4% in certain areas of Jackson MS...however I am uncertain of these areas as there are not Owner occ sales...15k property will rent for 600...but it just scares me. Are these the deals you are finding? or are they higher end properties in good areas?