Buying Your First Investment Property Free New Jersey For Sale by Owner Tips Listing Information
Build A Quick Reference Profile
Build your quick reference profile on your target properties so you can quickly compare properties.Items to note:
- School reputation
- Property Size (Square Ft)
- Lot Size
- Property Conditions
- Number of Units
- Cap Rate
- Cash Flow
- Appreciation Potential
General Rules To Keep In Mind
The 2% rule states that your monthly rent should be approximately 2% of the purchase price. Examples: A $100,000 home should rent for $2,000 per month; a $50,000 home should rent for $1,000 per month. This is a very conservative estimate but can help in deciding if a property warrants further investigation. In most parts of the country, the 2% is very difficult to achieve, but the closer you can get to that, the better cash flow you'll receive.
The 50% rule is a potent rule that helps you to fairly accurately predict how much your monthly expenses are going be for a said property. The 50% rule states that 50% of your income will be spent on expenses (not including the mortgage payment). Most real estate listings will let you know what the monthly income of a property is. By dividing that number in half, you are able to easily see how much you'll have left to pay the monthly mortgage (principal and interest). Any income left over after the 50% of expenses and the mortgage payment are taken out is your cash flow. The 50% of expenses includes all expenses, including repairs, vacancies, utilities, taxes, insurance, HOA fees, management, turnover costs, and the occasional larger repairs that must be saved up for (also known as Capital Expenses... like roofs, a/c units, furnaces).
The 70% rule is most often used by investors to quickly determine the maximum price one should pay for a property based on the after repair value (ARV). A common house flipper technique, the 70% rule can actually be used for any strategy when you want to find a good deal. The 70% rule says that you should only pay 70% of what the after repair value is, minus the repair costs.