Does the 1/10th marketting rule apply to buy-and-hold investing?

Question

I heard of the 1/10th marketting budget, where you should expect to spend 1/10th of your desired profits on marketting. Does this apply to buy-and-hold or is there a different rule?

Michael Quarles · Answer

@Jordan Redar

I see that we all have an opinion about marketing... the 10 times rule is a rule I use as an indicator/expectation of how much to spend when wanting to buy equity deals. Certainly you can spend less and much more. However a good rule of thumb. Eventually as time passes you will experience a 20-22 times multiplier.

And you can get lucky anytime... The idea of a good marketing plan is to stay lucky...

Typically buy and hold folks are not trying to buy equity they are trying to buy income. My formula is for folks looking to assign, wholesale, flip or wholetail properties.

And I have bought a ton of houses Sub2... Even wrote a couple hundred page book on it. So fall forward if wanting to buy Sub2 either passively or massively.

Jon Klaus · Answer

In podcast 81, Michael Quarles talked about using 10% of your profit for marketing. He actually spoke of a larger range, but used 10% as an example. The context was for wholesaling/flipping. I believe he said the longer you do it, the less you have to spend on marketing because of the residual benefit of your marketing activity.

I'd say 10% is way too high for buy and hold, unless you are in high gear acquisition mode. I do believe in marketing like a wholesaler for buy and hold, but you typically don't need to as many deals as wholesaler/flipper.

If you are OK with buying at near market value, you don't have to spend anything on marketing for deals.

Jordan Archer · Answer

@Michael Quarles

I read your book on sub-2, and it really helped push me in a good direction. I'm about to start marketing soon, and was trying to see what my monthly budget (marketing) might look like if I wanted to do 2 wholesale/tail deals a month.

To start I wanted 5k profit per deal, and was considering using your yellowletters service. I'm going to focus on the 3bed/2bath 2 car garage house.

Not sure what the best lead source would be for this group (ie. low-equity, high equity, divorce, etc.)..

Jordan Archer · Answer

Thanks Everyone.

Yes @Jon Klaus , I was referring to what Michael had mentioned. I was trying to figure out ways to buy MFR using subject-to financing, which after some thinking, really doesn't make sense...Not saying it wouldn't be possible, but I just don't think I would have the inventory to find consistent deals that way. I'm switching to single-family homes now, mainly for the inventory and exit strategies.

Terry Hershberger · Answer

@Jordan Redar

Where have you heard of this 1/10th marketing budget? I have never heard this and I believe it is nonsense. Marketing budgets vary depending on circumstances.

I believe too many people make up these so called "RULES" so they can sell a course, teach a useless class,  or seem smart to someone with no RE knowledge.

You really do not need to spend any money on marketing to purchase buy-n-hold properties. It depends on what your goals are and what types of properties you wish to buy as to what, if any , marketing you may want to do.

If you create relationships with great realtors and others in the RE world, they will bring you buy-n-hold properties, and sometimes before they even hit the market!

Hope this helps ya!

Happy Investing!

Elizabeth Colegrove · Answer

@Jordan Redar

I spend 0% on my buy and hold rentals marketing. I use to buy signs to reuse and found that they got the wrong kind of callers. No I use almost 100% postlets. I use to try militarybyowner but found that was also a waste. Honestly I have found the free sources to be better than the "paid" for.

Ned Carey · Answer

@Jordan Redar  I have never heard that rule, and I think the amount you spend would depend on your industry, profit margins etc.  I don't think a guideline of10% on marketing applies for buy and hold at all.

Anil Samuel · Answer

I was alluding to the rule of thumb which is 2% of the Purchase price for rent.

Account Closed · Answer

How does that work?

Anil Samuel · Answer

To determine if a buy and hold is a good investing use the 2% rule.  I dont think you have to spend 1/10th on marketing for buy and hold.

Does the 1/10th marketting rule apply to buy-and-hold investing?

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