Would you do it - doesn't meet 2% or 50% rule?

[Viren Patel]

Hi everyone,

First time investor and looking for some advice. Newly constructed duplex for 525K with each side renting for 1950 and 350 for a garage. Gross = 51000 but I would be going traditional financing route  + possibly Property management fees since it will be OOR. For first couple of years we can try managing ourselves since its a brand new build. Doesn't meet traditional 2% and 50% rule. What's the advice you have for first time investor. Thanks. 

[Lori Williams]

The 1% rule should be a starting point - where you can look at the numbers quickly and say it doesn't meet that minimum

if I used the 1% rule, I would be renting my properties for a lot less than I rent them for. Same thing if I use the 50% rule.

I use the "how much do I deserve to earn based on how much work an investment I've done" rule, accompanied by the "this is 100% better than anything else being rented in this market, so it should cost 100% more than anything else being rented in this market" and for now I basically follow these rules pretty closely

I've paid between 23k and 56k for a property. Including rehab, I have paid 73k to $136k for the property. And my net profits after paying all expenses range from 850.00- 1400+/mo. It's so in truth, my profits are at least 1% and are greater than 50%.

but you have to take each property individually. Figure out what your mortgage is going to be, your taxes, your insurance, how much you going to escrow for repairs and maintenance, calculate in a legitimate vacancy rate, property Management if you need that, and any other expenses.

you should at least be getting a 10% return after every single thing I mentioned above is paid.

I would think the only justification for purchasing a property for that much that brings in substantially less than 1% would be if the property were expected to appreciate in the 30 to 50% range to be honest. For investment that large I would think you should at least be putting $1,500 a month in your pocket after all expenses are paid, property management and repair and maintenance savings.

just my opinion. Your mileage may vary :)