The lucrativeness of the real estate industry is incomparable. However, real estate investors need to be aware of the process of analyzing a deal to ensure they get the most out of it. Fortunately, experts in this industry have come up with three thumb rules that investors need to keep in mind for successful deal analysis.
The 1% Rule
This involves taking the expected monthly income from rent payments and dividing it by the property’s value after repairs. If the number they get is one or greater than one, then the investor can be certain that the property will be a good deal, and vice versa is true.
The 50% Rule
This rule states that 50% of the total rental income that an investor gets from their property should be directed towards its operating costs. However, rental property owners must understand that mortgage is not part of the operating expenses. Such expenses include repairs, insurance, and property taxes.
The 70% Rule
This rule leans more on the buy and flip side of the real estate industry. It states that the total amount an investor pays for a property should be 70% of the estimated after repair value, minus the repair costs. This implies that the remaining 30% covers all operating costs, including taxes, utilities, property holding costs, and the commissions paid to the real estate agent.