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James Purvis

e: jwpurvis13@gmail.com

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my "3 Rules" when Investing in Real estate

1. The 1.25% Rule

The 1.25% rule states that your monthly rent should be approximately 1.25% of the purchase price.

 

Example: A $100,000 home should rent for $1,250 per month; a $200,000 home should rent for $2,500 per month. 

1.25%

2. The 50% Rule

The 50% rule is a great rule-of-thumb that helps you to predict how much your expenses are going to cost you each month. The 50% rule simply states that 50% of your income will be spent on expenses -- not including the mortgage payment. By the income 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 is your cash flow.

 

Note: Expenses includes repairs, vacancies, utilities, taxes, insurance, management, turnover costs, and the occasional "big ticket" repairs. 

50%

3. The 70% Rule

The 70% rule is used by investors to quickly determine the maximum price one should pay for a property based on the after repair value (ARV). The 70% rule says that you should only pay 70% of what the after repair value is, less the repair costs.

Example: If you are shooting for a $200,000 value in a property and it needs $35,000 worth of work. Using the 70% rule, multiply $200,000 x 70% = $140,000 - - $35,000 in repairs. The most a person should pay for this property is $105,000

70%

How i analyze a potential investment
1. Income

Rental Income                  __________

Laundry Income             +__________

Storage Income             +__________

Misc Income                   +__________

Total Monthly Income   =__________

2. expenses

Taxes                                 __________

Insurance                        +__________

Water / Sewer                +__________

Trash                               +__________

Electric                           +__________

Gas                                 +__________

HOA                               +__________

Lawn/Snow                    +__________

Vacancy                          +__________

Repairs                           +__________

CapEx                            + __________

Prop Management       + __________

Total Monthly

Operating Exp.              __________

Mortgage                      +__________

Total Monthly Exp.        __________

3. Cash flow

Total Monthly Income        __________

(Total Operating Exp.)     - __________

Net Operating 

Income (NOI)                      __________

Total Monthly Income        __________

(Total Monthly Exp.)         - __________

Total Monthly Cash Flow    __________

                                    x12    __________                  

Total Annual Cash Flow    __________

4.cash on cash

Down Payment                +__________

Closing Costs                  +__________      Rehab Budget                 +__________          

Misc Other                       +__________            

Total Investment:               __________

Annual Cash Flow /

Total Investment                __________

                                                       x100

Cash on Cash Return       __________%