Complete Real Estate Investing Rules Guide

REAL ESTATE INVESTING EDUCATION PLATFORM

Complete Real Estate Investing Rules Guide

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Cash Flow Rules

Rules used to determine whether a property can produce monthly income and long-term profitability.

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1% Rule

Monthly rent should equal at least 1% of the purchase price.

Monthly Rent ÷ Purchase Price = 1% or higher

Example: A $200,000 property should rent for around $2,000 monthly.

Tip: Use this as a fast screening tool before deeper analysis.

2% Rule

Monthly rent should equal 2% of the purchase price.

Monthly Rent ÷ Purchase Price = 2%

Example: A $100,000 rental should generate about $2,000 monthly.

Tip: Higher returns often come with higher risk or repairs.

50% Rule

Half of rental income may go toward operating expenses before debt payments.

Expenses = Gross Rent × 50%

Example: $2,000 rent may have $1,000 in expenses.

Tip: Verify taxes, insurance, repairs, utilities, and management.

Rental Property Rules

Rules landlords use to manage vacancy, reserves, maintenance, repairs, and tenant risk.

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Vacancy Rule

Budget for vacancy even when occupied.

Vacancy Reserve = 5% to 10%

Example: $2,000 rent with 5% vacancy = $100 reserve monthly.

Tip: Higher turnover markets may require larger reserves.

Maintenance Rule

Reserve money for repairs annually.

1% of Property Value Annually

Example: $250,000 property may need $2,500 yearly maintenance.

Tip: Older properties usually require more reserves.

Tenant Income Rule

Tenants often need income equal to 3 times monthly rent.

Monthly Rent × 3

Example: $1,800 rent requires roughly $5,400 monthly income.

Tip: Use consistent screening standards.

Fix and Flip Rules

Rules investors use to calculate rehab budgets, ARV, holding costs, and max purchase price.

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70% Rule

Flippers often pay no more than 70% of ARV minus repairs.

Max Offer = ARV × 70% - Repairs

$300,000 ARV × 70% = $210,000. Minus $50,000 repairs = $160,000 max offer.

Tip: Leaves room for holding costs and profit.

ARV Rule

After Repair Value is the projected value after renovation.

ARV = Future Resale Value

Comparable renovated homes sell for $325,000.

Tip: Use accurate comparable sales.

Holding Cost Rule

Every month of ownership costs money.

Holding Costs = Taxes + Insurance + Utilities + Interest

$2,500 monthly holding cost for 6 months = $15,000.

Tip: Delays can destroy profit.