What rule of thumb do you use? If you use one

[Daniel Basaldua]

Hey BiggerPockets Community,
I have not posted on here much. Mostly because I am still in the educating myself with reading and the podcasts. I did not have a question, until now! (Well two) Do anyone go by a rule of thumb before going further into analyzing a property? The 50% rule or the 1% or 2% test? I have been using the 50% rule (Cash Flow = (Total Income * .5) - Mortgage P&I). I have been trying it a few properties just to get myself "in the game." Some of the properties that I do the 50% rule on come up with very little or negative cash flow. Should I dig deeper and figure out all the numbers and forget the 50% rule?

Also, how do I get more involved with BP and hang out? Especially if I do not have any questions or advice to give at the moment? I know on the podcasts they always say get on and hang out.

[Nathan Gesner]

@Joe Villeneuve he specifically asked if you use a rule of thumb before critically analyzing the property. I don't know anyone that starts a detailed analysis the first time they see a property. The "rule of thumb" assessments are a means of filtering out deals we know won't cash flow, like a $400,000 house with tenants on a 2-year lease for $1,600 a month.

@Daniel Basaldua I personally try to get as close to 1% as possible because anything that beats a 1% return is doing well in my market. A SFR for $240,000 only rents for $1,400. A fourplex sells for $300,000 but brings in $2,500. I have to do better than that to make the deal worth my time.

I start with the 1% rule because it's very simple. If the property can rent for 1% of the purchase price - or better - then I will investigate and plug real numbers into a calculator to see where it really comes out.

I have used the 50% rule but I don't live or die by it based on my personal situation. I know others that do and it works very well for them. I recommend you analyze deals using multiple methods until you find what works for you.