Analyzing potential deals quickly

[Joshua Hill]

I was watching a video on "100 percent financed" youtube channel and the guy mentioned one way to vet loads of deals (quickly) that are sent to him so he knows which ones to further analyze and which ones to let go of.  What he does is, he takes one percent of the selling price, and compares it to the monthly gross income of the property. If the gross monthly income is greater or equal to the one percent price, he knows to further analyze the deal.

I was browsing through loopnet trying it out, and its been mostly duds. Just wanted to see if anyone else was using this same method or knew of any other methods.

(Btw, just in case you're wondering, I'm just a potential multi-family investor at the moment trying to soak up knowledge)

[Jeff Kehl]

@Joshua Hill @Hadar Orkibi @Theo Hicks

I'm a bit of a math geek, love formulas, calculations and building spreadsheets.

Here's what fascinates me about these 'rules of thumb'. 

Do you know that the 1% rule combined with the 50% rule is equal to a 6 cap? So for instance, a $100k property rents for 1% or $1000/month. 50% is expenses so you actually clear $500/month after expense.

$500*12 = $6000. $6000/$100,000 = .06 or a 6 cap! 

Isn't that cool?

Likewise a 2% rule is a 12 cap and a 1.5% is a 9 cap.

None of this really matters for an individual property because there are so many other variables involved such as financing cost/interest rate, capex needed, ACTUAL expenses, rent and price appreciation rate, ACTUAL expenses and others.

But I just find some of these basic truisms to be interesting.