You folks make my head spin. I have heard of this word "M A T H" a while back but have never figured it out. Have no idea what Sid's 2% rule is or how to find it but he seems to be doing very well with it. I need to learn something about it.

I was talking to Taylor (from Charlotte NC) a while back and we came to the conclusion (with my limited knowledge) that it is not a good deal if I have to use paper and pencil or a calculator. I would probably get the numbers wrong anyway.

So my strategy is Make a guess, wing it, and go for a ride. Don't get me wrong. I know I am not the sharpest knife in the drawer but I can cut hot butter. How do you others who have this "math" problem deal with it.

We are not looking for a huge ROI as much as we want good cash flow. When I hear people talking about $200 a month, I think "Not worth the time and effort no matter what the ROI might be." But we are older than some, maybe if we were younger it might seem better.

We want places that generally rent for about $1000 a month give or take. We have a few that rent for less but they are studios so that's okay. We want places that will STAY rented so location is super important. We also don't want to drive much anymore, so we have tended to group purchases in the same general locations, no more than 15 miles away.

Hey Mike and Homer!

Guys, you're making stuff happen! Don't change your ways just because of what I or anyone else tells you we are doing. For some folks like you, the stuff "just works" in your heads. I have to crank it out on paper. I wish I were more like you and had a built-in sense for what is a deal.

Now if you really want to know... (WARNING, M A T H below!)

The 2% Rule says I want the gross rent of the house to be at least 2% of the "all in" costs (purchase, rehab, holding, closing). Let's say "all in" is $50,000. I want rent at least $1000 (2% of $50K).

To figure it: divide one month's rent by "all in" costs. In my example: $1,000/$50,000 = 2%.

If 2% or greater, I go after it. If not, I skip it.

...So my strategy is Make a guess, wing it, and go for a ride...

same here. I have no idea what cap rates, etc. are ... actually never even heard that term until I started reading here.

I know what something costs, what it will cost me in expenses, what I will bring in and what appreciation expectation I've got. I can figure it out in my head within 10 minutes max. I also don't use just numbers.

Oh Mike you're wayyyy smarter than that.......

I use a couple general rules of thumb. I know from previous market experience that $XYZ is what I'm gonna get for rent from a particular location. Therefore, I'm only going to spend $ABC for a shack. I want that property paid for in 7 years or less & I want the tenant to do that, not me. I know that in my market my properties are not gonna appreciate at any rate. What was worth $30K today is likely to be worth $30K 10 years from now. Well in the real world.....not the world the courthouse deals in.

I can rent all day, every day at $595 for a 2 bed shack. I won't go above $35K for that purchase. Throw in an unusual buy at $20K or less & I'm really walking in tall cotton. I used to be able to count on a month's rent for insurance & a month's rent for taxes. THOSE costs are getting out of control......everything else I can generally have a good grip on. We are protesting more & more taxes on properties & the insurance guys HATE to see one of us walk thru the door with an out of control renewal notice.

I'm not living on my rental income so any extra dollars go to pay down debt. We did a lot of buying in 2008. Those have been paid off for several years. We've done a lot of buying in the last 2 years. Those are slowly coming off the lien list & several we paid cash for doing a flip here & there. But that's only been possible because we were able to get our first group paid off.

How about going back to school, taking a few college courses in Math to sharpen up your skills.

Even elementary subjects have widespread applications these days, from rental efficiency calculations to estimates of stock market valuations. I even have a tenant who is an artist at Sony Studios, who asked me to explain something about use of linear algebra. He says that all of his work these days is done on a computer, and the linear algebra is used to transform coordinate systems to take objects out of one scene and put it into another.

Mike understands better than most.

By using known measures, we can all benefit from the shared information on this forum.

Statements like "I know my market", "I can get $XXX all day long" Don't help as much as I bought this 80 unit multi unit at a 10 cap and have improved operations by changing XY &Z- It sold at an 7 cap, This made me $1,200,000 profit.

A course in real estate sales is a good idea for everyone. My SO has an actual college degree in Real Estate, I went through the 20 unit (6 or 8 courses) CA brokers certificate courses about ten years ago.

It helps understand the various math "rules" and various laws, appraisal understanding, etc. I made a lot of money in a short time using standard principles and having the knowledge to review the numbers vs going off gut instinct. When I was dealing with half milion dollar investments, of MY money, I HAD to "guess right." Knowing the principals also helps protect you from emotional decisions.

Homer Thanks Your post made me feel better

WMH I don’t think something that rents for $1000 a month can be found around here. You might get up toward $650 maybe $700 but that would be a stretch. Within 15 miles would be a luxury for me. I have some on the west side of the state and some on the east side of the state. 250 miles

SID thanks for the lesson. I used a calculator and tried a few. Then had to guess what the answers meant. I think I was getting the numbers put in backwards.

I have now got it figured out. You divide the rent by the all in cost. The rent goes inside the little box and the all in cost goes outside the box when dividing. I think I gave all my math skills to my daughter. She completed 9th grade algebra her last quarter of the 8th grade.

Nicole…sounds like a lot of us here are in the same boat.

Julie thanks for the vote of confidence. I can always depend on you. I want to stop in again next summer and visit you and JK

Moshe … it isn’t from “not” going to school. It’s just not up there between the ears where it should be and should stay. Didn’t mean to mislead anyone here with my post. Two more classes and I will have my second masters’ degree. So I have spent time in school

CJL I am starting to see there are several of us like-minded people here

Sisco. After Steve (WA) and I visited your operation I wished I could grow up like you.

LTD I took the Missouri real estate sales course and at one time could do the “ciphering”. Its just gone.

Buy Low, With Cash.

Tenants make Direct Deposits and Banks do the Math.

Everything else is Elementary.

SID

I run a few numbers

Addy Rent Price Percent

702 500 / 2000 =.25

515 375 / 4000 = .093

213 500 / 3000 = .16

405 500 / 3800 = .13

100 200 / 450 = .44

124 500 / 3200 = .156

219 200 / 4000 = .05

1303 350 / 900 = .38

Gr 400 / 1700 = .235

None seems to come up to 2% like you look for but I will just have to do what I can.

I guess I need to check the ones on the other side of the state and see if they are doing any better.

RB (MI)

collect early pay late

Mike, you're right on target. Your first example for address "702"

$500 / $2000 =.25 If you're getting $500 a month on something you only spent $2,000 to purchase, you're at 25%....not 2%...which is FANTASTIC and all I have to say is "I'm not worthy!"

Roy, I am with you, man. We could CARE LESS about appreciation as we will die owning these properties and let the kids deal with the fall-out.

We bought a $35k mobile home with a stick built garage, added a (legal) studio over the garage for maybe ($20k?) and that place grosses $1600 a month. Net is not much less, btw! Taxes and Insurance are negligible and upkeep is cheap.

Bought a $45k modular with a separate barn. Home rents for $1100 and when the apartment in the barn is done, will rent for $1000. Probably $25k in improvements to create the apartment. Not done yet but pretty sure all in will be less than $80k and gross income will be $2100.

Our last purchase was a bit more: $95k for a modular that rents for $1125, but it came with a stick built addition that will ALSO rent for $1100 with about $20k of improvements. Most of that $20k is contractor costs because to make it legal, we have to use licensed contractors.

We actually don't CARE about the cost to improve. We could control costs much more than we do, but we want nice places rented to nice people who pay $1000, $1100, $1200 to live there.

When I first started becoming interested in RE, my buddy and I used to travel to Philly to work for an investor who had around 150 properties in and around the city.

We would work like dogs just for the opportunity to pick his brain at times.

My buddy asked him how to analyze a property to see if it makes sense. The guy basically shrugged his shoulders and said, "I don't know, if it makes money buy it."

So simple.

Roy, you're 100% accurate about your mobile home with numbers like that. You can understand that with an 8th grade math level education.

Street smarts. No need for the guff.

WMH said, "rented to nice people who pay $1000, $1100, $1200 to live there."

You don't need a third masters degree. Just take a little coursework in what you want to learn. After some exercising, the stuff between your ears will work fine.

It is funny, I love numbers but these formulas simply don't sink in.

I will buy a shack for 70 times monthly rent. That is where it stops for me.

I'm involved in other ventures - you have five fingers on your hand so you should be working in five directions.

In 2017 I made a 59.28% margin on sales, up from 2016 where I was around the 30% mark.

But I have no clue as to how to figure ROI despite the fact that ten years ago someone wrote it out for me slowly using small easy to follow words.

Operating costs are something I focus on. I own 10 commercial mowers, It costs me 2.48 in labor and fuel to cut one lawn (This is a number from a couple years back).

I sell scrap metals because I get rid of old appliances etc....I know that in 2014 the scrap sales were $214.87 as compared to this year where thus far they are $98.13 So therefor most of the mixed metals are given away to a guy now. I've abandoned the separating of metals so to have less time invested in the process. (I also stopped stealing your outdoor units).

So if we all were sitting with Roy eating lunch on his dime, I would be happy to use my pencil and paper to convert your numbers into Enigma code, but you would need to first tell me where to add and what to divide after that I could 2% between French Fries.

* I'm much more interested in the Tenant Whisperer stories here....and I absolutely wallow in the DIY repair tips.

Ken (NY)

Smokowna you got it... Math is for Lunch.

Math helps bankers.

I am in a bit of a niche but the math doesn't change:

I buy multi family development sites, my target numbers for my area are $10k-$30k per unit. So if its a 10 unit site its worth $100k-$300k depending on variables. IE location, site work etc.

I prefer to buy them for less of course.

$30k is where I top out in my market, I have turned down a number at $40k.

I than build a beautiful class A project on it and rent it at the top of the market to top of the market tenants. My cost per unit is about $130k-$140k with site work.

When they are done I have cash flow and equity from day one, and everything is new and built properly.

My construction business is my main thing, its sole purpose really is to generate cash to build rentals, and keep a number of trades around to maintain them. I make 20%-40% on each house I build and sell so I generate a lot of cash to buy rentals with. Most builders like toys, which I do as well. But a $300k boat isn't going to make you much going forward. I rather put that money into a piece of dirt and generate income with it.

That's it no crazy math, I actually failed math several times in HS and in college! I like bullet points though!

1. Generate lots of cash.

2. Put said cash into rentals.

3. Live on rental cash.

That's about it.

DJ

TAX SALES. A good way to buy if you have the time to wait.

This was a somewhat run down 2 bed house. However, a lady was living there so it sounds like one of Roy’s houses. I did my required notices per MO law and she never responded.

I have done nothing to the house except mow the postage stamp size yard a few times.

Have it under contract to sell. Sell price $10,200. They have done a lot of work to the house so I think they will go ahead and buy it and not skip out. I WANT to sell. Don’t want to keep the house but with the work they have done it wouldn’t bother me to do so.

With price, interest, and of course LATE fees I should clear about $14,500 by the time they get it paid for. Those are numbers I can work with. It’s a hard job but someone’s got to do it.

I get several houses for under $1000.

Look at house Addy of 405. It is appraised at assessor office for $92K. I am selling it for 60K on time payments.

Its just what I do.

I spent four years in the third grade.

By the time I was in the sixth grade I was the most popular kid in class - I was the only one that had a drivers licence