So you want to be Real Estate investor?
Written By: Jimmy Murray, Lyon Property Group
A frequent question I always here is, “What do I need to know to become a real estate investor?”
Honestly? Basic Arithmetic.
IF YOU CAN ADD, SUBTRACT, MULTIPLY AND DIVIDE then you can invest in Real Estate.
I know it’s crazy to think that the math that Mrs. Carol taught you in 2nd grade is all you need but it’s true! [Well unless it’s common core, not sure how that translates]
In all seriousness though, let’s dive into the details.
Seasoned investors use 2 main formulas to evaluate property. These formulas are the 50% Rule and the 70% Rule. One is used to flip houses and the other is used to as formula to buy & hold income producing property.
Let’s break it down...
The 50% Rule
Total Rents * 50%
The 50% Rule is used to determine if a buy and hold property is a valuable opportunity. This formula will help you figure out if the asking price on an income producing property will provide the rate of return you are looking for. This formula alone has helped me buy income producing property and allow me to never make a single mortgage payment in my life. My tenant’s make them for me.
*Spoiler Alert* Most realtors do not use this approach to create their listing price. However a savvy investor will most likely use this to get an idea if a property is worth purchasing.
The 70% Rule
After Repair Value * 70% LESS Repairs = Purchase Price
So quarantine has you stuck watching HGTV and you’re thinking, I COULD DO THIS!
Truth is, you can. All you need is the 70% Rule. This rule will allow you to price the risk of any rehab that comes your way. The trick with this rule is that you will need to make sure that your repair budget is appropriate.
AND for anyone who is asking, how do you get a property that cheap? Well … that is a blog post for another day.
Moral of the story, when you break it down on a fundamental level, real estate investing so easy even a 2nd grader could do it!