The New Real Estate Investing Rule You Must Know (No More 1% Rule)

Double your cash flow with turnkey medium and short-term rentals from Rent to Retirement: www.renttoretirement.com/ or text “REI” to 33777
If you’re getting started in real estate investing, you NEED to know about some of the beginner “real estate rules of thumb.” These rules can help you quickly calculate whether or not a rental property or house flip may be worth buying, but are NOT the final calculations before buying the deal. You may have heard of a few of these-the 1% rule, the 50% rule, and now a new rule for 2024…the 10% target!
With the 10% target, you get the best of all these rules rolled into one. Except, the 10% target doesn’t just account for rent or cash flow-it factors in ALL the potential profit, so you can make the best decision possible before you buy a deal. If your deal meets or exceeds the 10% target, then you may have a home run deal on your hands that’ll beat out most other investments. Stick around because we’re going to explain exactly how to calculate it.
Hit the 10% target with high-ROI turnkey rentals from Rent to Retirement: www.renttoretirement.com/ or text “REI” to 33777
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See Dave’s Full 10% Target Deal:
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2% Rule? 50% Rule? Here’s the #1 Real Estate “Rule” I Use to Assess Property:
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The 1% Rule Is Dead:
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00:00 Real Estate Rules of Thumb
00:34 Sponsor: Rent to Retirement!
01:43 The 1% Rule
03:02 The 50% Rule
03:44 The 70% Rule
03:56 Do These "Rules" Still Work?
04:38 The 10% Target
06:17 Why 10%?
09:46 Real 10% Target Example
13:02 Would You Use It?

[@davidstephens9594]

Dave Meyer, On a rainy day, I will sit at my desk and completely geek out on Excel with my rental portfolio and come up with all kinds of numbers and measurments but man I dont even come remotly close to some of the geeking out that you do. Good job. You are the defently the Chief and I give it up to you.

[@TEFgolfer11]

Hey Dave, good video. How does IRR stack up against your 10% rule (differences, etc)? I think one of the X-factors is going to be accurately estimating the rising (non linear, as you have it input currently) costs of maintenance repairs and most notably insurance costs, depending on where you live. I believe environmental factors will play a crucial role in the future for accurately estimating future returns, 10% rule or otherwise.

[@zachschaneberger]

Is there any way to get a copy of this spreadsheet?

[@kmarshie]

Great video. This is a great way to actually visually display the added benefits beyond cashflow. People eyes usually glaze over when I start talking smh these types of numbers beyond cashflow

[@davidmeyer1101]

Great question. I'll work on that!

[@peterschogel]

LOVE IT!! Truly shows there is more than one way to “skin a cat”. HOWEVER, this is not something that can be done like the 1% rule that can be done in your head. Great for a more detailed review, second level review, then a quick review. Keep working on it, simplify. BTW, I couldn’t find the spreadsheet in the Resources webpage could you please direct me to it?

[@sydneycoleman1848]

Good stuff!

[@iwonderwherethatroadgoes7571]

Start With Strategy is exactly what I needed.

[@Jary3166]

Thank you Dave for this excellent video! One question regarding tax benefits: I see $2209 in year 1 benefit at the top of the spreadsheet, but I notice that in the rates of return section, it is below $1000. Also, the amount changes every year, but I would expect it to stay the same size as it is based on the purchase price? Would you kindly please explain this?

[@adeebshaheer6193]

how do we calculate amortization and appreciation percentage, what is the formula?

[@ayezee2639]

Interesting and good info. I'm not cash flowing on my 1 rental because I'm nice and wanted my tenant to enjoy lower-than-market rent in that area as I did when I lived around the corner. Now, she's in her 3rd year and I have to increase to market. When she's gone I think I'll do try AirBNB.

[@jameslegrone498]

Nice thanks

[@brocbebout8343]

I'm a Pro member but can't find the spreadsheet like others have mentioned. Interested in reviewing this as I've done similar analysis in the past. Thanks for the video.

[@johansoto8922]

all I can say is that through RENT TO RETIREMENT I am about to close on my 3rd property this year using the 5% loan.

[@sandraavalos9501]

Who’s you lender ?

[@zacyanez3832]

Is it rude to ask for your pre-tax return? My wife and I are looking to diversify our portfolio and we are curious about real people’s experiences.

[@multiimediia]

How?

[@sam132222]

I am a pro member and I still can't find it or see it in the resources page. Dave, can you help?

[@Buy_YouTube_Views_a050]

Your authenticity shines.

[@herbertv9945]

Is literally the same as the 1% rule the deal is 275k and the rent is 2850 is even more then 1%

[@toldenfr]

Sad to see your blurred spread sheet... but thanks

[@anywherelending1714]

Is this 10% of out of pocket expenses to buy the property (down payment + closing costs) or 10% return above all expenses?

[@ftballplayer36]

Can you please share your spreadsheet?

[@DaisyDeMiami]

I calculated my future cash flow conservatively at 3% (based on the history of FMR in this area), so not too far off 🤓

[@tommybrown5499]

This new rule is great to keep in mind. Such informative content!

[@whatsupwhoadie]

i'm a bp pro member, does anyone know exactly where the spreadsheet is in "resources tab"?

[@jeffrey3837]

I love this video but it is really kinda difficult to use so it really wouldn't be useful because to do this you almost already have to do a full analysis to get these numbers. Also, something that I haven't seen talked about is actually running the numbers of actual return on equity in relation to your down payment and the return. For example, 50k with 80%ltv buys you a 300k residence. If you then have 2% appreciation year over year which is a 6:1 so it would then be a 12% return in respective of your down payment. I think this would be a really good video with a ton of views because nobody really quantifies that stuff.

[@Mister.Doodler]

Thanks mate. I am from India and request you to share the spreadsheet to me too. Not a member but certainly a follower of BPs. Thankyou

[@zacyanez3832]

If you want to look at risk adjusted I would suggest a few tweaks: 1) back out the yield on t-bills from ROR or compare both the stock and real estate play to t-bill returns. 2) I am guessing you levered the real estate investment, you should also lever the stock portfolio 3)you said real estate investing requires more time and effort than being an index fund, adjust for the value of that time 4)to really consider risk adjusted returns you need to reflect the cost of under performing. I can be pretty sure that the 100k in low cost whole market etf is going to get the 8%. 100k in real estate has more variability/risk is 2% enough of a premium to cover that?

[@jeffrey3837]

I think a problem with this response is that it is extremely difficult for some normal person to be able to lever the stock market (from my understanding). While real estate it is easy and normal practice. People when talking about the stock market almost never lever the stock market.

[@jeffrey3837]

Specifically for point number 4. When you are talking about leveraged properties this is very easy to beat the 8% of the stock market. You can actually do this by just looking at the appreciation alone on a leveraged property. For example a 50k down payment on a 80%ltv means buying a 300k property. That mean you now own 6x the amount of your down payment for only 50k. A 2% appreciation means you will get 6k year over year, now that in itself is a 12% return in respective of your 50k you paid each year because it is leverage.

[@zacyanez3832]

I personally do not invest on margin but I think anyone with at least 2k in a brokerage account could invest. Leverage investing is risky, at least riskier than unlevered investing.. My question/comment was regarding the “risk adjusted” 10% to 8%. I don’t think anyone needs a spread sheet to tell them 10% return is better than 8%. But 10% requires work, expertise, and risk. 8% is there for anyone who can open a brokerage account and buy a low fee etc that tracks the whole market.

[@jeffrey3837]

@zacyanez3832 yes you are right anything above the market requires you to then to do extra work. But when you consider normal investing strategy for real estate which is leveraging. You pretty much can increase your return 6x+. Especially if you are using leverage that makes it way more risky for sure because it's you don't properly manage and run the numbers you will fail. If you buy without leverage you will make less but you will for sure be safer and not have to worry about getting foreclosures or loans getting called due on.

[@user-mz5rv6dh2y]

That is e exactly how i have been looking at things. The hay day of 1% is over. We have to look in the cracks now.

[@bryanfahey3144]

10% seems like a good logical number - however - I would argue - market appreciation is hard to completely figure out. And cash flow - I think that number should be adjusted based on the price of the house. For example - say you have a house that costs $10k a year in loans - if cash flow is only 2%, that means you are taking home $200. Not enough to justify if the house say needs a major replacement like hvac.

[@DaisyDeMiami]

My partner and I also did something similar last week comparing against HY CDs, Treasury Bonds, the average on the Stock Market, etc. It is great advice to share to make sure your deals will beat any other type of investing you would do (that may not be a favorable especially when you factor in taxes). Thanks Dave! 💪

[@davidmeyer1101]

Exactly! It's all about resource allocation. What is the best use of your assets and time given the broader investing environment?

[@RTR-Adam]

The other issue you run into with investing in the stock market is that a lot of the gains come from a very small timeframe. If you miss those weeks or months then you're getting much lower returns. I like your 10% rule.

[@sam132222]

This is good way to measure ROI. I agree 1% rule is old, especially those in high priced market. Thanks! Is this excel sheet on the resource page?

[@jillyanmacmorris5176]

I like the percentage you chose, and comparing it to other kinds of investments. And this applies to the full breadth of residential real estate investors, including those on the entire spectrum of value add to cash flow focus. WE NEEDED A NEW RULE OF THUMB! Down with the 1% rule!

[@bluecollar7060]

$2850 rent on a 300k house? Where are you getting a deal like that because that looks like a year 2015 deal

[@atubolino]

My exact thought!

[@tinyhomeviewer4858]

@@atubolino I've seen duplexes, triplex's and quad's for 250-350k in a couple of the Ohio markets and the combined rent exceeds $2850. I've been looking at Ohio since it made it the #2, #3 and #8 spots for Zillow top 10 hottest markets.

[@ol_jasper6043]

How important is amortization?

[@Aculus1]

In his calculations, Dave is adding the portion of the amortized loan paying down the loan principle to the appreciation growth to get the total increase in owner's equity. If the market takes the property up by 2% and then rent used for mortgage pays down the debt by 1%, the owner's equity increases is 3%.

[@JoseFernandez-sl2ek]

Comparing the stock market to Real Estate is like comparing apples to oranges. The stock market is 100% passive while RE is time demanding. In the stock market, you can make 10% in a single day, week, month, and/or quarter. Since October, I jumped back in the stock market. Of the 10 stocks I currently own, I am up over 55% on 3 of them, up 16% and 8% on two others, and down 1%, 3%, & 6% on another 3. I am up 21% on the portfolio (that's a 42% increase on an annualized basis). Since all of these were purchased in a ROTH, the gains are not taxed. Of course, as quickly as these stocks rise, they can decline as well. That would never happen in RE (safer bet). In the future, I would not compare stocks to Real Estate. Both are exceptional investment vehicles and both should be in everyone's portfolio. Even though a gas engine needs both gas and oil to run, we do not typically ask which is better/more important. I do like your creativity of the 10% rule. It forces the one analyzing the deal to look at all possible areas of return on a property. Helps us to look at the entire picture.

[@CBW0314]

Interesting investing theory. Would you be willing to share the calculator? I’m confused as to how you calculate tax benefit return?

[@davidmeyer1101]

It's gonna be available for BP Pro members!

[@MAD-DUKE]

@@davidmeyer1101 Let me know, I might have to sign back up as a pro member to use it!

[@sam132222]

​@@davidmeyer1101I don't see it on the resource page :(😢

[@ftballplayer36]

@@davidmeyer1101is it up already?

[@christopherstafford236]

can you share the spread sheet?

[@NewProvidenceUF]

10:51 Is cashflow % in your calculations measured against your cash in the deal? It’s hard to follow with the spreadsheet zoomed out so far.

[@davidmeyer1101]

I measure it against equity, so its 'return on equity' actually.

[@rashidkhalil4631]

Buying at 8% interest and accounting for vacancy / Repairs / Cap ex and property management If this leaves you with + very cash flow , I am Shocked. I am buying creatively with 4% interest and accounting zero for all the above. Still negative cash flow. Pay down just cover the negative cash flow to make it breakeven. Still on hook if any expense or vacancy comes up. I am buying in Orlando/ Tampa / Houston / Dallas and RaleighDurham triangle. Depreciation is just premature gratification. Only play for me is 5 year hold and 30% appreciation over that time. Leverage at 1:8 So 100 k investment holding 800k assets with 30% target gains will get me out at 200% gain over 5 years. MAY BE TOO STUPID.😢

[@OldVetNerdSage]

Does the 1% rule even exist anymore? I haven't seen it in quite some time.

[@davidmeyer1101]

It does for individual deals for sure, but its in a limited number of markets, mostly in the midwest.

[@MaksymPalii-dp1qh]

Could you please show any property in Sacramento metro area for 270K requiring 15k with potential monthly rent of $2850?

[@jimyoung2623]

The one drawback I see is that it isn't a quick and easy calculation you can do in your head.

[@davidmeyer1101]

True! Let me think on that one...

[@chrissprague4025]

Why would I do all that work and take on more risk for only 10%. I can get the same return in the stock market for no work or just put my money in a money market with no risk making 5%.

[@davidmeyer1101]

This deal would be 12%. Far better than the 8% avg for the stock market. That’s why i do it!

[@leroyjenkins5584]

@@davidmeyer1101 People have to stop talking about the broad stock market. That should be compared to the broad real estate market. No single residence property has outperformed Nvidia over the last 10 years

[@jeffrey3837]

​@leroyjenkins5584 this is how you have a very risky portfolio. The reason why you do the big funds is because they have much less volatility. Even with the case of nvidia when you start using the formulas for risk adjusted it becomes much less because a single stock has a lot of volatility regardless of what stock it is.

[@jeffrey3837]

A big reason to do this is because real estate is also a type of market that you can easily leverage money. Because of this that 50k you invested gets you at a 80% LTV a 300k property. Now that 300k property would be by his numbers getting appreciation alone for 2% which would be 6k a year. By that alone in relation to the money you put into the deal aka 50k. You are getting a 12% return year over year. Then debt pay down which is also technically a leveraged at the 5:1. Because of this you are making way more money than the stock market long term because of leverage alone.

[@jeffrey3837]

Also and example of the debt paydown. With that I am currently cashflowing on my first property which I paid about 40k on May 2022. Since that time I have already gotten to 9% equity since then before any renovations I made. When I started at the 3.5% so I basically made my money back already in equity.

[@justinwoodrum6634]

Can someone explain what amortization means when part of the pie chart?

[@Aculus1]

The part of the mortgage payment that pays down principal and increases owner equity.

[@KristinaNewYork]

Yikes, adjusting rules to justify investments that don’t provide returns is not the answer. also, depends on holding period. 5 year period might give you a negative 30% on value of the property. calculate that into your bogus 10% target.

[@J14805]

How is the value add percentage calculated? Purchase price is 270K. Improvements is 15K. ARV is 290K. Wouldn't the value add be (290K-(270K+15K))= 5K/290K=1.7%? But that's just the instant value add percentage. So yeah, how's the value add calculated and how can it be recurring as part of your return?

[@brianburke808]

No one? I've gotta be the guy? Fine..."Yarrr.... They be more like guidelines than actual rules." :)

[@Mayordomo32]

I was waiting for this, too.

[@chasefry-ib2jk]

Any pro member wanna throw me that work sheet??? I'm just getting started in this game

[@freethemarkets]

Is that the same as IRR?

[@davidmeyer1101]

Nope, IRR is a more complex calculation that does a better job accounting for multiple inflows/outflows of data.

[@freethemarkets]

@@davidmeyer1101 I like this rule. It doesn't even factor in the leverage you get from real estate.

[@leroyjenkins5584]

Real Estate doesn't beat the stock market with appreciation.. Only cash flow. Im in both and Im in great neighborhoods. Maybe someone invested in the worst mutual fund ever

[@jeffrey3837]

That is actually not true at all. How many assets are you Abel to get that you can get an 80%ltv attached to it. You for sure can't do that really in stocks or not easily. 50k down-payment 80%ltv buys you a 300k property. Thinking of a very conservative number of 2%appreciation. That ends up being 6k appreciation on the asset year over year. This ends up being a 12% return of your 50k down-payment to get the deal. That in itself beats the stock market.

[@markoon139]

I never understood the 1% rule because if interest rates are higher you can cash flow negative even if it's hits the 1% rule. Basing it off a cash price makes no sense. You need to calculate debt too

[@XavierWConzet]

Your pie chart adds up to 12%

[@MAD-DUKE]

He said 12%, exact phrase, "..when you look at that we're looking at a 12% return so that would pass the test of the 10% target..."

[@davidmeyer1101]

It does! It's not a 100% pie chart -- I am showing the total return -- 12% AROI

[@williammorrison920]

Why not start an email list to get the Excel sheet, and then solicit being a BP member 😁?

[@luisvalette7210]

Your pie chart shows 12% when sum.

[@MAD-DUKE]

He said 12%, exact phrase, "..when you look at that we're looking at a 12% return so that would pass the test of the 10% target..."

[@NiceGuyDan08]

Which is fine, it means it meets and exceeds the 10% target.

[@davidmeyer1101]

Yes that is the intention. Showing how different types of returns contribute to my overall return (12%).

[@superlarz]

1% has been outdated for a while

[@oscarcaballero9014]

Coudnt get through that commercial im out

[@steph8307]

I'm stuck at hot water heater 🫣