To calculate the 70% rule, simply take the estimated ARV of the home and multiply it by 0.7 (or, 70%). The 70% rule is for those looking to flip a house, and it states that the investor should pay no more than 70% of the home’s after repair value (ARV), minus any repair costs.

When comparing properties, make sure they are in similar markets and have similar operating, maintenance and other costs. If one property has a GRM of 6.67, while another has a GRM of 8.33, the one with the lower GRM (6.67) may be the better option since you’ll pay off the investment faster. You can use the GRM to compare different investment properties, too. These include repair costs, operating costs, maintenance and vacancy rate. Of course, you’ll need to consider other expenses when determining a property’s profit potential. The GRM of this property is 6.67, meaning it will take about 6.67 years to pay off the property using your gross rental income. Your annual gross rental income is $30,000 (2,500 x 12). The lower the GRM, the more lucrative the property may be.įor example, you purchase an investment property for $200,000. The total you get is the number of years it will take to pay off the investment using just your rental income. It’s the purchase price divided by the gross annual rent. The gross rent multiplier (GRM) gauges the amount of time to pay off the investment. Other popular methods include the gross rent multiplier, the 70% rule and the 2% rule. When it comes to real estate investing, the 1% rule isn’t the only method used for determining the best opportunities to buy a rental house. In this case, you would continue your search for a more profitable rental property or make an offer of no more than $180,000 to purchase the home. This property wouldn’t pass the 1% rule because the monthly rent is less than $2,000 (or 1% of the purchase price). Let’s say the same property, listed for $200,000, has historically charged $1,800 for monthly rent. An Investment Property That Does Not Pass The 1% Rule Since this property charges $2,500 per month, it passes the 1% rule.

Per the 1% rule, the monthly rent should be equal to or greater than $2,000 per month. Maybe you’re looking to purchase an investment property that’s listed for $200,000 and has historically charged $2,500 for monthly rent. An Investment Property That Passes The 1% Rule Then, you’d multiply that total by 1% to get a minimum monthly payment of $1,600. In this situation, you would add the cost of repairs to the purchase price of the home, for a total of $160,000. Let’s say the home required about $10,000 worth of repairs. Using the 1% rule, you should find a mortgage that has a monthly payment of $1,500 or less and charge your tenants a minimum monthly rent of $1,500. Here’s an example for a home with the purchase price of $150,000:

Noi calculation bigger pocket