BASICS – Rules You Need to Know when Investing in Real Estate
In real estate ‘Rules’ might be the wrong word, these are essentially guidelines. But like in anything else, sometimes rules are made to be broken. This will give you a point of reference and can help you in quickly evaluating a property and determining if it’s worth a deeper dive.
50% Rule
Unless you know differently, you should estimate your operating expenses to be 50% of gross income. I typically adjust this to at least 55% for older properties, or those with a smaller unit count.
1% Rule
Monthly rent collected should be greater than or equal to 1% of the purchase price. This rule is used much more in evaluating residential properties (single family house (SFH) or 2-4 unit multifamily). I’ve not found it to be that useful in small multifamily (10-50 units).
