Nurul Hana Adi Maimun

Here’s a great rule of thumb for buy-and-hold investors (rental property owners) who focus on single family houses. And again, this is a good rule of thumb to use to perform a quick, first-pass financial analysis on an investment to determine whether it’s worth looking at further.

The 2% rule states that, to make a good profit on a single family investment property, the gross monthly rents should be at least 2% of the total purchase price of the property. For example, if you could charge $1200/month in rent on an investment house that costs $60,000, you would make a good profit.

It’s important to understand that the 2% rule is a very conservative rule. I prefer to look at this rule as a “sufficient, but not necessary condition” to make an investment, meaning that if you find a property that meets the 2% rule, you likely will want to buy it, but just because a property doesn’t meet the 2% rule doesn’t mean that you don’t want to buy it. In fact, in many parts of the country, it can be very difficult — if not impossible — to find properties that will generate rents that are 2% of the purchase price of the property. But this certainly doesn’t mean that you can’t make money in these parts of the country…you just need to work harder to evaluate deals.

Let’s look at an example of the 2% rule in action, and see why it works:

Say you find a single family investment property for sale for $25,000. Additionally, let’s say that based on your research of the local market, you believe you can rent that property for $500. As you can see, this property meets the 2% rule — monthly rents are 2% of the total cost of the property.

With a gross rent of $500/month, using the 50% rule, your monthly NOI (amount remaining for mortgage and profit) would be $250:

NOI = Gross Rents * 50% = $500 * .5 = $250

Assuming a 100% fixed interest loan at 6% for 30 years, your monthly mortgage payment would be exactly $150, leaving exactly $100/month in profit:

Profit = NOI – Mortgage = $250 – $150 = $100

Most SFH investors consider $100/month to be minimum acceptable return per month, and any property that meets the 2% rule will generally return at least $100 per month.

Source: realestate_iq

The 50% rule is a rule of thumb to do a very-quick first-pass analysis of a single family investment (rental) property. The rule states that — on average — the total expenses associated with operating a SFH investment will be about 50% of the gross rents. The expenses included in the 50% are things like: taxes, insurance, repairs, property management, administrative, legal, turn-over costs, eviction costs, etc. Basically all the ongoing annual expenses associated with maintaining the investment.

Here’s an example of how the 50% rule can be used:

Let’s say you find a single family property for sale for $100,000. Additionally, let’s say that based on your research of the local market, you believe you can rent the property for $1000/month. Using the 50% rule for a first-pass financial analysis, we find that all operating expenses would total about $500/month:

Expenses = Gross Rents * 50% = $1000 * .5 = $500

So, the amount you have left over at the end of the month to pay your mortgage and your profit (also known as you Net Operating Income, or NOI) is $500:

NOI = Gross Rents – Expenses = $1000 – $500 = $500

Now, let’s assume you would get 20% down, 30-year fixed interest mortgage at 6% on this property. Your monthly mortgage payment would be $480, leaving you $20/month in profit:

Profit = NOI – Mortgage = $500 – $480 = $20

So, your very preliminary analysis indicates that you can get a small positive cash flow from the property with a 20% down payment. $20 per month isn’t much to get excited about, but consider that if you can negotiate the price down (thereby lowering your monthly payment), this might be a worthwhile deal. For example, if you can negotiate the price down to $85,000, your monthly payment drops to $408/month, leaving you nearly $100/month in profit.

Also, remember that property management costs are factored into the 50% expenses, so if you plan to manage the property yourself, all fees that otherwise would have gone for property management will now go to you.

As always, don’t trust rules of thumb to make your decisions for you, but don’t hesitate to use them for “back-of-the-napkin” assessments.

Source: realestate_iq

As a real estate professional you can’t get around not doing some form of direct marketing to find new projects. So with this being said….What makes a potential customer decide whether or not to open a piece of direct mail? The consumer ultimately needs to be in the market for your services, but is there a way to spark that curiosity? Every day people head to the mailbox and collect their mail. As they take that initial glance while walking back to the kitchen table, decisions are already being made. While taking a seat and reaching for that hot cup of coffee, mail is divided into the dreaded recycle pile and the need-to-take-a-closer-look pile.

To get in the coveted need-to-take-a-closer-look pile, consider these five simple tips that will convince the consumer to open your direct mail piece: •Don’t over sell on the outer envelope:

1. Create intrigue with a simple headline that is personal and specific.

2. Provide your audience with reasons to look further such as relevant teaser copy like “Information You Requested!” You could also use a white envelope with return address – it’s more intriguing and “official” than a colorful envelope, which automatically sends promotional signals. •Give your package a sense of importance by making it unique with:

3. Non-traditional sizes that differ from the majority of #10 and 6 x 9 envelopes that are typically used.

4. Alternate paper stocks or finishes make your piece feel different.

5. Cards, magnets and/or heavy stock inserts give your mail piece a physical presence **These simple tips will give you a distinct advantage, make a good first impression, and help your direct mail designs stand out and get opened.**

Source: realestate_iq