Who uses any Rules of Thumb when evaluating a property? Why?

[Greg Stetz]

Question for the group:

Do any of you consistently believe in and use any “rules of thumb” when evaluating a property? Such as... the 2% rule, 1% rule, 50% rule... why?

[Bryan Lyde]

@Greg Stetz imho, once you know the market you're active in, you will start to notice certain reliable metrics and can pounce on deals when they beat the average.

I generally dislike general statements, pun intended, so here is an actual example :

in Indy in the area I'm active, the first 5 properties are all above 1.2%, with expenses in low 40s. for #6 I knew I would get 1.4 as a hold if the inspection came back as expected so I jumped quickly on the deal based on knowledge gained from the first five. 7-8 were a duplex and was approaching 1.4 also. my criteria are the same so I already knew rents and expenses. this deal came less than a month after #6 but when the numbers work you gotta be willing to pounce.

as with most underwriting, the rules of thumb came about for a good reason but should always be a starting point until you master your market or find someone who has and get them on your team.

happy hunting!