50% Rule / 1% - 2% Rule

[Nick Weidner]

Disclaimer... New Investor, purchased my first duplex this past Sept.  Now to my question:

I understand the 50% rule and the 1% / 2% rule, what amount to you apply the rule?   For example if you purchase a property for $125K an you put down 25%.    What amount to you use when crunching the numbers?   The full purchase price + rehab?   Only the Loan amount?  or  The loan amount + rehab?

[Hattie Dizmond]

@Nick Weidner 

The question on which amount you use depends on what you're financing.  You always want to use your total amount financed for all your basic calculations.  The real question becomes what is driving your investing decisions.  If your end game is cash flow, then the amount of cash - assuming you paid for the rehabs out of pocket - may be a non-starter for you.

The easiest thing to do is use the BP Rental Calculator, which will let you put in all the relevant information and give you just about every metric you'll ever need.  That way you can determine which one(s) is important for your strategy.  Here's the link...

https://www.biggerpockets.com/buy-and-hold-calculator