To illustrate how un-awesome you are, let me first share how awesome I am.
When I was just getting started out investing in 2001, I put all the money I had, $4,000, into an index fund. I called my bank and said put it in the S&P 500 index. Warren Buffett taught me well.
The savvy salesmen on the other end of the phone who was clearly more experienced than Warren told me I was crazy to invest in that. I could make money twice as fast if I invested in their aggressive growth fund.
This is a short, simple, down-and-dirty tutorial to so you’ll know how much money your rental property will make before you buy it.
Going from simple to complicated, the first thing to understand is the 1% rule, which is easy to do in your head, and can save you the trouble of breaking out the calculator for properties that are overpriced.
The 1% rule is quick and easy. Monthly rent should be at least 1% of the acquisition price. The acquisition price may be a higher number than the purchase price. It’s purchase price plus the money to get the house ready to rent.
$80,000 to purchase house plus
$20,000 remodeling equals
$100,000 acquisition cost.
$100,000 home should rent out for at least $1,000 a month, or it would not be a good investment.
What is the logic behind the 1% rule?
If a house will give you 1% of the purchase price each month in rent, then it gives you 12% of the purchase price each year. That apparently means the investment makes 12% a year!!!!
I had a chance to avoid an eviction. I don’t think you can avoid them all, but this one, yes. I didn’t listen to the obvious warning signs.
My experience with purchasing my first rental property was scary enough to give up on real estate investing for the rest of my life!
Actually, my wife recently remarked to me that she was SHOCKED when, after going through the stress of purchasing the first rental property, she realized I wasn’t going to stop. She said she thought I had enough!!!
If you haven’t read about my first rental yet, read about it here.
After I bought this house, I discovered the seller had concealed the fact that something under the house had pushed up the floor almost two feet in the middle of one of the rooms. It was quite the ordeal figuring out what it was and how to fix it.
Also, while the house was vacant, someone decided to climb into the crawl space under the house and steal all the copper plumbing.
So I guess real estate investing isn’t for me!
But my love for real estate runs too deep!
My threshold for self-punishment still not met!
I had a desire to succeed in real estate.
I decided to get back on that horse and keep riding!
After moving back to the USA from Japan in 2012, I started a new job in Alabama. I met a fellow military member who shared my passion for real estate. Meeting him had a profound effect on my life financially.
What he did with real estate is exactly what I wanted to do.
And he was wildly successful.
When I met him, he had been living there for two years. In that time, he purchased four houses with cash, remodeled them mostly on his own, and rented them out providing substantial cash flow each month (especially without a mortgage!)
He bought in the range of $25-35k, putting a few thousand and sweat equity into them, then renting them out for around $750 a month. The numbers were REALLY working for him.
If you apply the 1% rule to these properties, a house that totaled $40k in cost to rent out should pull in $40o to be “worth it.”
Flipped several houses in Washington D.C. to help me build income for real estate investing.
Purchased twenty rental properties with cash.
My website is all about helping others to get out of debt and create passive income from real estate.
But you can not mess with real estate until your finances are straight. You gotta go get Jim’s book! (or at least read his website)
“Spend less than you earn–invest the surplus–avoid debt”
The central theme of Jim’s website and book.
It’s hard to believe the Path to Wealth can be this simple.
But in his book, you’ll see it is.
I got to admit. I love this book! My review is going to sound a little over the top, but it’s a damn good book!
I’ve been big into finance and real estate books my whole life. I’ve read them all.
Ok, way more than this!
About a year ago, I stumbled across financial independence and early retirement websites and it opened up an entire new world to me!
I began seeking out all the top blogs in this field, and one that kept coming up was jlcollins.com.
To put it bluntly, his Stock Series was the most comprehensive explanation of investments I have ever read. There is so much noise and confusion out there in the finance world, and he slices right through it and tells you what’s really important.
He makes it easy to understand the complex world of money. His approach to investment is so simple, it’s alarming!
I followed his blog closely and eagerly awaited new posts.
When he sent out an email explaining he was writing a book and soliciting help from his readers for proofreading, I jumped at the chance!!
The only reason I volunteered was because I wanted to read the book ASAP!!!
As luck would have it, I was selected to be a proofreader, and had the opportunity to read the book before publication. (Actually, I’ve read it about 20 times. Occupational hazard!)
The book is exactly what I was hoping it would be.