The Lousy Investor Episode 11: Quick and Easy Rental Property Math
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No one gets into Real Estate so that they can spend all day pouring over Math Calculations. We want to do deals and make money, right?!?! So today I am going to give you some simple tools to analyze a rental property in seconds.
First is the 1% rule. This simply means that the monthly rent on a property is equivalent to 1% of the purchase price. For Example, if you purchase a property for $140k that needs $3k in repairs, the all-in cost is $170k. With the 1% rule, this property would need to rent for $1,700 a month!
Next is the 2% rule. This rule is VERY similar to the 1% rule. With a 2% concept, the monthly rent is equal to 2% of the all-in cost. If we use the above example of $170k all-in cost, with a 2% rule, the property would rent for $3,400 per month. Now that may not be realistic in this part of the cycle, but it is still good to understand the math, right?
Lastly is the 50% rule. Here we are stating that roughly 50% of the Gross income will go towards paying all the expenses for the property, not including the mortgage. So, if a property rents for $1,600 a month, the net rent would be $800.