Rules of Thumb
In an older article, I wrote extensively sharing my views on conventional financial rules of thumb. In general, these rules are shortcuts allowing you to quickly analyze a situation (with an anchoring point) and determine if that particular situation merits further consideration. They should not replace the need to do research, do math, or evaluate if a short-term financial decision aligns with your long-term financial goals.
As I started learning about real estate investing, it turns out that many real estate investors use a number of rules of thumb to help them narrow down the number of potential deals and determine which ones they should spend more of their time focusing on. To give you an idea, the numbers showing up on our auto searches for one county are 182 (2 bedroom single family homes), 315 (3 bedroom sfh), 48 (4+ bedroom sfh) and 31 (small multifamily properties). That’s a lot of potential properties to go through! As our time is a limited resource, we will spend it on potential deals that can bring in the most profits. In addition, with the ‘buy & hold’ strategy, even putting 20% down on the cost of a property can be a lot of money. Thus, my husband and I definitely want to do our due diligence. During my research, such a process is very time and labor intensive.
In this article, I’m sharing two rules of thumb real estate investors use to sift through hundreds of potential deals. Just like other conventional financial rules of thumb, these guidelines are not “rules” per se. We use them only as screening rules to help us narrow (filter) our search. Even if a property meets one or both of these rules, it doesn’t mean we hurry to make an offer. This simply means that particular property merits further consideration (I’m currently learning about the more advanced and detailed strategies, and will be sharing them on the blog soon).
As aforementioned (and stated in the previous article), my husband and I are only interested in the buy & hold strategy at this point. So the focus here is on screening rules for investors who use the buy & hold strategy to build wealth.
