Rules to Real Estate Investing | Freedom Vlog | Ep. 70

Foreign. Hello, welcome, Freedom fans. Hi, I'm Tina Coo and this is Mark. Familiar face to all of you. Today we're going to talk about the rules of real estate investing. This is vlog number 70. Can't believe.

Oh, man, 70. That's a lot, a lot of info.

That's true. Wait until we hit 700. All right, so the rules of real estate investing, these are rules of thumb, I should say. These aren't, you know, hard and fast. This is, this is a must follow commandment. It's just a general rule of thumb for quick analysis. So we're going to talk about the 1%, the 50% and the 70% rule. Mark, kick us off with the 1%.

Sure. Well, the 1% is that just taking a look at the rent compared to the purchase price. If I were to buy a $100,000 home, is my rent going to be $1,000? Sometimes a little bit more, sometimes a little bit less. We've noticed here in Dayton and then Cincinnati markets and the other markets that we represent that we're very close to the 1% rule. So I know that when we get a little bit more into it in the podcast, we'll maybe take a deeper dive into Dayton, Cincinnati, Franklin, Middletown, some of the other markets that we work in and try to explain the difference on that 1% and the variables that can go along with it. But the basic of that is 1% of your total purchase price.

Okay. And why is that important? Or what is that a good gauge of, a good indication of?

Well, I mean, again, some of the things, you know, again, each investor looks at it a little bit differently, but again, it's to take a look at, like, the health of the market. You want to make sure that you're not paying $200,000 for a house and only collecting 1,000 in rent.

But a mortgage payment might.

Correct. It might exceed that. Correct.

Cushion for expenses. Okay.

No cash flow, things like that. But again, in the podcast, one of the things that I will probably get into talking about is, you know, the class of the property.

Yeah.

You know, you start getting into buying B plus and A class properties, you may not hit that 1% rule if that's not what you're looking to invest in. So I'll touch on that as well.

Oh, I see what you mean. Like, it just depends what is your, like, what is your goal?

Correct. Like, so in our market here, say I buy a $250,000 house, I might get 2000 in rent. So it's not near the 1% but that 2000 is definitely going to cover my say 1400 dollars mortgage and expenses. I may only cash flow $200, but it doesn't matter. I'm now buying that asset down and clearing 200amonth to maybe put back towards the mortgage. Different kind of investing.

Gotcha, gotcha, gotcha, gotcha. Thanks. All right, and the 50% rule, right, what's that all about?

Well, that, that's, that's the, that's to keep you safe. That's, that's basically. Again, none of these are hard and fast, but the 50% is just to take a look at what your net rental is. And so again, just going back to the $100,000 scenario there. So I'm going to be collecting $1,000 in rent. I mean just assuming that 50% of that is going to be going towards operating expenses. So whether that's your mortgage payment, whether it's you're using a property management company, so it's more to level your expectations that you're not going to be making the thousand dollars a month, try to keep in mind it's more like the 500 after expenses. So I mean that, who knows, that might even be after you have paid your mortgage down even significantly.

Yeah.

Just try to table that expectation and I think that you'll have a better job with investing in total, knowing that you have that reserve if needed.

Gotcha again. So that you don't like by wrong. Correct.

These are all, you know, again, not rules if you will, but rules of thumb to, to try. Keep in mind, nothing on this show.

Should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.