PURCHASE
PURCHASE PRICE
The price of a property you are purchasing.
The purchase price should not include purchase or rehab costs.
TOTAL CASH NEEDED
The total amount of cash you will need to purchase and rehab a property.
With Financing:
Total Cash Needed = Loan Down Payment + Purchase Costs + Rehab Costs
Without Financing:
Total Cash Needed = Purchase Price + Purchase Costs + Rehab Costs
70% Rule
A purchase criteria commonly used by real estate investors when analyzing properties that require rehab work, especially house flips and BRRRRs.
According to this rule, the purchase price of a property you're buying should be less than or equal to 70% of its after repair value (or an adjusted multiple), minus the rehab costs you expect to have.
If the 70% after repair value multiple is not accurate for your specific market, you can adjust it to better match your targets.
Purchase Price <= ARV * 70% - Rehab Costs
CASHFLOW
1% RULE
A purchase criteria commonly used by real estate investors when analyzing rental properties.
According to this rule, the rent to value ratio of a rental property should be 1% or higher.
Rent to Value >= 1%
2% Rule (Rentals)
A purchase criteria commonly used by real estate investors when analyzing rental properties.
According to this rule, the rent to value ratio of a rental property should be 2% or higher.
Rent to Value >= 2%
50% RULE
A purchase criteria commonly used by real estate investors when analyzing rental properties.
According to this rule, the operating expenses of a rental property should be less than or equal to 50% of its operating income.
Operating Expenses
<=
Operating Income/2
CASHFLOW
The total net amount you will receive from a rental property as income.
Cash flow accounts for all sources of income and all expenses, including loan payments if you are using financing.
With Financing:
Cash Flow = NOI - Loan Payment
Without Financing:
Cash Flow = NOI