Real Estate Investment Rules
A plain-English guide to the formulas and strategies every real estate investor should know.
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Browse Properties →💰Rent-Based Rules
What is the 1% Rule?
The 1% Rule says a property's monthly rent should be at least 1% of the purchase price.
Why it matters: It's a quick way to estimate whether a property might cash flow.
What is the 1.5% Rule?
The 1.5% Rule means monthly rent should be 1.5% of the purchase price.
Why it matters: This is a stronger deal than the 1% rule and usually indicates solid cash flow.
What is the 2% Rule?
The 2% Rule means rent should equal 2% of the purchase price.
Why it matters: These are rare but highly profitable deals, often found in distressed or off-market properties.
🏠Offer Calculation Rules
What is the 80% Rule?
The 80% Rule helps investors determine their max offer:
Why it matters: Leaves room for profit, holding costs, and resale expenses.
What is the 75% Rule?
The 75% Rule is more conservative:
Why it matters: Provides a larger safety margin, especially in uncertain markets.
What is the 70% Rule?
The 70% Rule is one of the most common formulas used by investors:
Why it matters: Widely used for flips and wholesale deals to ensure strong profit margins.
💵Cash Flow & Financing Rules
What is the Cash Flow Rule?
The Cash Flow Rule means a property should generate positive monthly income after all expenses.
Why it matters: Positive cash flow means the property pays you every month instead of costing you.
What is the DSCR Rule?
The Debt Service Coverage Ratio (DSCR) measures if a property earns enough income to cover its loan.
Why it matters: Lenders typically require a DSCR of 1.2 or higher to approve loans.
📈Return Metrics
What is the ROI Rule?
Return on Investment (ROI) measures how much profit you make compared to your investment.
Why it matters: Helps compare deals and choose the most profitable one.
What is the Cash on Cash Return Rule?
This measures return based on the actual cash you invested.
Why it matters: Great for leveraged deals where you didn't use all your own money.
What is the Cap Rate Rule?
Cap Rate measures a property's return without financing.
Why it matters: Used to compare investment properties quickly.
🔁Investment Strategies
What is the BRRRR Rule?
BRRRR stands for:
Why it matters: Allows investors to recycle their money and scale quickly.
📊Property Valuation Tools
What is Gross Rent Multiplier (GRM)?
GRM compares property price to rental income.
Why it matters: Quick way to evaluate if a property is overpriced.
What is the Equity Growth / Appreciation Rule?
This refers to the increase in property value over time.
Why it matters: Builds long-term wealth even if cash flow is small.
What is the Loan-to-Value (LTV) Rule?
LTV compares loan amount to property value.
Why it matters: Lenders use this to determine risk. Lower LTV = safer loan.
⚖️Risk & Stability Metrics
What is the Break-Even Ratio (BER)?
BER shows how much income is needed to cover expenses.
Why it matters: Lower BER = safer investment.
What is the Payback Period Rule?
This measures how long it takes to recover your investment.
Why it matters: Shorter payback = faster returns and lower risk.
➕Custom Rules Investors Use
What other rules do investors use?
Investors often create custom rules based on their strategy, such as:
- ✓ Minimum cash flow (e.g., $300/month)
- ✓ Minimum ROI (e.g., 15%+)
- ✓ Target DSCR (e.g., 1.25+)
- ✓ Buy Box criteria (zip code, price, rent, etc.)
Why it matters: Every investor's goals are different, so rules should match your strategy.
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