Buying a rental property? Follow these rules
If you're in the market for a rental property, you've got to listen to Brandon Turner explain two of the most important rules of real estate investing.
Turner is the senior of editor of BiggerPockets.com, a website dedicated to helping readers profit from their houses and condos.
That's why he knows all about what's known as the 50% rule, which says at least half of your rental income will be eaten up by expenses other than the mortgage.
We know that's a lot more than most first-time landlords expect to incur on everything from plumbing problems to lawn mowing, and Turner explains how it limits the amount you can realistically spend on a rental property.
Then there's the 2% rule, which says you need to earn at least that much on your investment each month. This helps you decide how much rent you need to charge to make a purchase worthwhile.
Or, as Turner puts it: If you're going to spend $100,000 on a house, then you've got to charge $2,000 a month in rent. Won't fetch that much? Then it's a bad deal.
"When there's a thousand properties on the market in your area, you don't have time to go through each and every one, one at a time," Turner says. "The 50% rule and the 2% rule are really good ways to look at a property within 10 seconds and decide, is this going to be worth sitting down with a pencil and paper and figuring out the return."
Take a listen.
Click here to read a transcript of our conservation with Brandon Turner