Unlocking the Secrets of Real Estate Investing: 10 Thumb Rules from a Master to a Novice.

Hey there You are welcome to the fascinating world of real estate investment. I am excited to have you come along with me to this building today. Being a veteran investor who has probably made every mistake in the book, I have learned some priceless lessons which I would be glad to disclose to you. Today we will cover 10 thumb rules – the basics that have been my beacon through many successful fixes and flips. Follow these rules and you will be able to make a property analysis rather quickly and in this way spare your time and money for the future. Thus, let’s start!

1. The 1% Rule

Firstly, let’s discuss the 1% Rule. This rule is simple but powerful: The monthly rent should not be less than 1% of the purchase value. Thus if you are contemplating a property with the price of $200,000, the minimum rental cash flow should be $2,000 per month. Flippers who bought homes in 2021 paid $240,000 on average, as per ATTOM Data Solutions. With the 1% Rule, you would be looking for a monthly rent of $2,400 minimum for a property like that.#1PercentRule #RentalIncome

2. The 50% Rule

Following is the 50% Rule. While you calculate your numbers just assume that nearly 50 percent out of your rental income will be spent in operating expenses other than the mortgage payments. This includes such things as property taxes, insurance, maintenance, and property management fees. According to the National Association of Realtors, in 2020, the median real estate tax rate was 1.1% of a home’s value. Bear this in mind while performing your computations.#50PercentRule #OperatingExpenses

3. The 70% Rule (for flips)

The 70% Rule is what you need if you are going to flip the property. The rule the maximum purchase price should be 70% of the ARV, minus repairs. Such that, if the ARV of a property is $250,000 and it needs $50,000 in rehab, then your maximum purchase price would be $125,000 ($250,000 x 0.7 – $50,000).#70PercentRule #Flipping

4. Gross Rent Multiplier (GRM)

The Gross Rent Multiplier is a shortcut for comparing properties. To find it, the property price should be divided by the annual gross rental income. A lower GRM frequently signified a superior investment. The information from ATTOM Data Solutions indicates that the average GRM for single-family homes in the United States was near 15 in 2021.#GrossRentMultiplier #PropertyComparison

5. Cap Rate

Another essential metric is the Cap Rate. It is determined by dividing the annual net operating income by the property price. In a general sense, a higher cap rate represents a better investment. According to Arbor Realty Trust, in the second quarter of 2021, the average cap rate of the U.S. single-family rental properties was 7.7%.#CapRate #InvestmentMetrics

6. Cash-on-Cash Return

Cash-On-Cash Return measures the cash return in terms of the money you have put in. To determine the cash-on-cash return is to divide the annual pre-tax cash flow by the total cash invested. The more the Cash-on-Cash Return rate, the more appealing the investment. According to a 2021 report by Roofstock, average Cash-on-Cash Return for U.S. single-family rental properties was 7.1%.#CashOnCashReturn #InvestmentReturns

7. Price-to-Rent Ratio

The Price-to-Rent Ratio provides a quick approach to evaluate the rental market. This ratio is determined by taking the property price and dividing it by the annual rent. A lower index ratio implies a better rental market. In 2021, the average Price-to-Rent Ratio for single-family homes in the U.S. was 18.9, as per the report of ATTOM Data Solutions.#PriceToRentRatio #RentalMarket

8. Debt Service Coverage Ratio (DSCR)Once the property is being financed, DSCR is a key fact to know. Do it by division of net operating income by the annual debt service (mortgage payments). DSCR of 1.25 or more is usually good. Arbor Realty Trust data shows that single-family rental properties in the US had an average DSCR of 1.4 in 2021.#DSCR #FinancingMetrics

9. The 2% gained on the appreciation.

For property appreciation potential analysis, the 2% Rule is an effective tool. Search for properties that will increase by an average of 2% a year. The National Association of Realtors outlined that median home price in the United States advanced by 5.9% year-on-year in 2021.#2PercentRule #PropertyAppreciation

10. The Ten Percent Rule (for vacancies)

To top it all, remember about vacancies. When estimating the rental income, it is advisable to assume 10% vacancy rate of the property. This will enable you create the more conservative and realistic projection. According to the U.S. Census Bureau, the average vacancy rate for single-family rental properties in the U.S. was 4.7% in the year 2021.#10PercentRule #VacancyRate

Realise that these thumb rules are the basics. They are a perfect tool to quickly give you a sense of the potential of a real estate but always carry out your due diligence. Consider market characteristics, property particulars, and your own investment objectives in coming up with the final choice. Armed with these principles and a dedication to lifelong learning, you are now on your way to smashing it in the world of real estate investment.