Real estate investors: what does GRM mean? What about the 1% rule, 2% rule, 50% rule? HELP!

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Real estate investors: what does GRM mean? What about the 1% rule, 2% rule, 50% rule? HELP!

 

Indy Anna explains…
– What does GRM mean, how to calculate it and why it is important.
– How to determine if a property’s GRM is “good” or not.
– A few other factors that you want to consider.

What is the gross rent multiplier (GRM):
– This is the number of years it would take a property to pay for itself if all of the rent was paid and there were no expenses.
– For example if a property has a GRM of 10 that means it would take 10 years for the rent to pay for the property if there were no expenses
– But there will always be expenses so is this pointless? No, because it is a quick tool to evaluate and compare on property to another one, which is how all real estate is valued.

How do I calculate the GRM:
– You take the purchase price of a property and divide it by the gross yearly rent.
– So if a property is selling for $200,000 and it makes $20,000 a year in gross rent then $200,000 / $20,000 = 10. The GRM is 10, it will take 10 years for the gross rent to pay for the property.
– Make sure to take Azam’s Math Class because you can do this calculation quickly in your head and it will impress people lol.

What is the gross rental income:
– This is the TOTAL rent that comes in from the property this is BEFORE any and all expenses.
– The GRM and gross rental income does NOT include taxes, insurance, vacancy, repairs, debt service (mortgage payments), utilities or ANY other cost.
– This assumes a fantasy world where every dollar that comes in from rent goes directly to your pocket, so it is an unrealistic number that should only be used to compare properties and not actually project your cash take.

What is the 50% Rule?
– This is much more realistic look at how much money you’ll actually make with the property, the 50% rule says that whatever the rent for a house is, it will cost you 50% in expenses.
– So if a property rents for $2,000 a month then you will, on average, spend $1,000 a month in various costs and expenses. This will normally last for about five years and then your ratio will improve.
– This is a widely used number by banks, lenders, investors and many others in real estate. This is why for many landlords you should project based on 50% of the rent being eaten up in expenses for the first five years and if that’s a problem you may not want to do the deal.

What is the 1% rule?
– This means that if an investor wants to buy a property it should rent for at least 1% of the purchase price.
– So if you buy a house for $100,000 it should rent for at least $1,000/month. This is less likely to happen the more expensive the house is, so a $500,000 house is unlikely to rent for $5,000 a month.
– The 1% rule is typically only for homes in the $50,000 – $300,000 range.

What is the 2% rule?
– This says that an investor should buy a house that rents for 2% of the purchase price.
– This means if you buy a house for $40,000 it should rent for $800. That is doable, but once you get to prices like $150,000 this is not feasible because a $150,000 is not likely to rent for $3,000 a month.
– Indy is one of the ONLY places in the country where you have find 2% houses, I’ve got plenty so email me Love @ BigReia.com and I’ll see how I can help.

Summary and Recap:
– The GRM is the gross rent multiplier and you calculate it by diving the purchase price by the yearly GROSS rent so this does not include any expenses. The GRM tells you how many years it will for a property to pay for itself.
– The 1% rule says you should buy a $150,000 that rents for at least $1,000 a month right? Not it is $1,500. Just take the purchase price and take two zeroes away and that should be rent according to the 1% rule.
– The 2% rule works the same way, take away two zeroes and multiply by 2. So a $30,000 house should rent for at least $600/month. There are only certain places in America you’ll find these deals, usually in the Midwest.

Hope that helps if you have any more questions you can email me below.

Thanks so much! = )

Make the Universe Smile…

Want more (brilliantly) EPIC posts of real estate investing and bidness badasssery...?

There is a great post and class on the 38 Ways to Buy Apartment Buildings Zero Down with Pet Policies, and here are some other helpful and EPIC posts... for starters as a real estate investor if you ever want to build a business that makes you 30 grand a month then you MUST do this...

There's also a great class Azam did on how anybody can retire in the next 1-2 years with $30,000 a month in passive income by buying and selling businesses zero down.  What about Micro Flipping?  We have a great class on how to start micro-flipping real estate zero down from your house and make $500/day, speed wholesaling 101.

There’s also another great class on how to buy apartment buildings zero down that you can check out as well.  This relates directly to growing income on rental properties.  Speaking of which make sure to check out our epic page on 14 ways to avoid tenants from hell.  Also we have a great post on how to make build a "six figure a month" real estate wholesaling business.

Also here is a post on how I did this and I flipped a house off Zillow for 30.  Also you can check out the post on five steps to flip a house right off Zillow for 40 grand.  You can also check out our other epic post on 57 ways to make money with vacant land.

Here’s another post on how a Hero flipped a house off Zillow and made 40k in a few weeks while he was learning to read.  Also you want to check our post on the EPIC $25 million letter and the copy writing lessons for real estate investors, you'll love it.  Also you can see how ONE letter is making me $9,000 a month.  Also you can check out the post on 101 FREE places to advertise your houses.

Also check out the "SA" class and your REAL chances of create social mobility and income ascension with your real estate business.  Brilliant stuff.  Also there is a great post on the ONLY way you'll ever make 30 grand a month as a real estate investor and/or business builder.  Another brilliant class with a free downloadable Investor Guide is about 19 Ways to Make $10,000 a Month by Helping Tired Landlords.

Plus make sure you check out Azam's post on how to hire a realtor that makes you $10,000 a month... while you sit back with your shoes kicked up on your desk and fingers folded behind your head.  Also there is a great post on how to make five grand a week from putting out signs.

Also we have some great posts on 30 ways to buy real estate with no money down.  That is a two part series so make sure to watch the second part on the 30 ways to buy real estate zero down and with no loans or credit.  I also get questions about our "Epic Flipping" and how to turn $1 into over $25,000 by flipping ordinary items for exponentially high ROI.

And don’t forget our EPIC page on 100 FREE ways to find motivated sellers, we are making the number one page in the world on FREE ways of finding motivated sellers.  Also check out how I find motivated sellers from code violation properties, and also how I make over $1,500 a week giving investors access to that list.  Speaking of lists, for a list of the "Good People" and My Indy Anna Homeys you can go to our People Page at https://www.BigReia.com/people.

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Go to BigReia.com and you’ll become allergic to being an LC and addicted to improving the world and creating Social Mobility for you and yours… 

Thanks so much!  = )

Make the Universe Smile.

~ Indy Anna
Love (at) BigReia.com
317-969-5619 (YES that's my actual Direct Line and I really do answer lol, so please text me first Thx!)

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