The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: meteor on November 12, 2015, 11:20:17 AM

I find it helpful to have simple formulas for "back of the envelope" evaluations in finance (such as the 4% rule for retirement, rule of 72 for stock market returns, and car purchase price should be less than 1/2 your annual salary).
This forum has much in depth analysis of real estate (interest rate variability, etc) but I'm looking for some VERY BASIC things like:
(Assuming I bought a rental house for *CASH* (no loans/interest rates are involved)
What is a formula should I use estimate annual expenses/insurance/repairs/taxes? (For example 1% of home price/value)?
What is a formula for determining whether a rental house is a good deal? (for example, should monthly rent should be what percent of house purchase price?)
Rule of thumb historical home value return (comparable to historical stock market returns)
I realize the any of these answers could be a book length, but I just want some basic formulas I can keep in my head.
Thanks!!!!

generally, a house is worth an indepth look, and is a good bet for cashflow, if you can collect 1% of the purchase price per month... AKA the 1% rule.

Shoot for the 1% rule. However, it is usually only possible with buying a house that needs some rehab.

Gross rent 1% of value and all overhead (taxes, HOA, insurance, maintenance, vacancy) 50% of rent income. Return should then be about 6% plus indexed to inflation (the value of the property should usually at least appreciate with inflation  but you could get lucky or UNLUCKY in this regardbuy a property in the right location).

Look up the 1% rule, 2% rule and 50% rule... BiggerPockets is a great resource.
Don't bank on appreciation. That's not a strategy... it's a gamble.
Shoot for the 1% rule. However, it is usually only possible with buying a house that needs some rehab.
This is very location specific. All of my rentals exceed the 1% rule and they needed no rehab whatsoever.

Look up the 1% rule, 2% rule and 50% rule... BiggerPockets is a great resource.
Don't bank on appreciation. That's not a strategy... it's a gamble.
Shoot for the 1% rule. However, it is usually only possible with buying a house that needs some rehab.
This is very location specific. All of my rentals exceed the 1% rule and they needed no rehab whatsoever.
Well done! Where are those units (what city)?

Look up the 1% rule, 2% rule and 50% rule... BiggerPockets is a great resource.
Don't bank on appreciation. That's not a strategy... it's a gamble.
Shoot for the 1% rule. However, it is usually only possible with buying a house that needs some rehab.
This is very location specific. All of my rentals exceed the 1% rule and they needed no rehab whatsoever.
Well done! Where are those units (what city)?
RaleighDurham metro area, NC