Buying Real Estate – The 10% Rule
When your realtor is bringing to you properties of interest that match your property type, you must use the 10% rule when examining the property.
What is the 10% Rule?
- The 10% Rule is an incredibly important step that you cannot skip.
- It is a formula that you have to use in order to filter properties.
- If the property passes the 10% rule test, you put this property on your list of ‘properties of interest’.
- If the property fails the 10% rule test, then you want nothing to do with the property. Move onto the next property, and start to analyze that one.
- You must perform the 10% rule test on every single rental property that you review.
The 10% Rule Formula
- You get from your realtor the monthly current rents of the rental property
- You multiply this value by 12
- You take this new value and divide it by the total purchase price of the rental property
- When you calculate this, if you get a number of 10% or greater, you should put this property on your short list.
- If you get a number below 10%, please forget about this property and move on.