Hi Guys
Quote from a Housemouse.co.nz posting.“This “11” second rule is the OLD Lowball rule! It’s been around for many years and is pretty useless unless you want to accumulate properties in small towns (or you buy in a property Slump)!
All of these quick “rules” can be equated back to a yield as follows:
1 The Lowball Rule
Take 50% of weekly rent x 1000 = purchase price
If rent is $200 p/w x 50% x 1000 = $100,000 purchase price (i.e. 10.4% yield)And I have seen other “classic rules” too, like:
2 The Golden Rule
Rent = min 1.4 x interest cost
If rent is $200 p/w = $10,400 then Golden Rule says pay max of $106,122 (i.e. 9.8% yield)
i.e. $106,122 x 7% int = $7,428 x 1.4 = $10,4003 The 1.6 Rule
Weekly rent x 1000 divided by 1.6 = purchase price
If rent is $200 p/w x 1000 = $200,000 divided by 1.6 = $125,000 purchase price (i.e. 8.32% yield)How many properties in the Australian major cities (let alone NZ) fit the 11 second solution?
(I would be surprised if many (or any) did!)Good luck with the 11 second solution because a 10.4% yield in this market will probably only buy you high risk in a small town!
I like the golden rule best but even thats a little unrealistic in a hot market.
I am of the firm opinion that the best calculation is to consider annual rent and then deduct ALL cash expenses (assuming you have to borrow 100% of the purchase price interest only). If there is a surplus of cash after ALL expenses then it is positively geared and if not it’s negative. You should ALWAYS make sure it is AT LEAST positively geared if your intention is to simply rent it out long term (i.e. not flipping or doing up to sell etc). Using this equation you will need a yield at present of @8% at present (with interest rates @7%) but if int rates increased to say 9% then this will mean you will need a yield of @10%.”
Feel free to comment people.
Regards
Hi,
Let’s move back to Apr 1999 and I put a post on creonline.com about the 11 sec. rule.
A received a host of replies telling me it was a aste of time.
Good thing I didn’t listen to them… who knows where I’ll be now.
11 sec solution deals do exist… we bought one in Ballarat just last week. The problem is that people let their bias and ignorance get in the way of seeking out problems.
Sure, 11 sec pretty houses aren’t falling off trees like ripe apples, but great deals exist in every market.
Of more importance is having an investing plan and regularly looking for deals in a variety using a variety of tactics, including pounding the pavements yourself.
As for small towns… rememeber, it’s about cashflow first and capital gains second. Good tenants live everywhere.
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve
Thanks for the reply.
As you no doubt gathered the quote was from a NZ investor.All except one of my properties are +ively geared and they are in 3 cities of NZ.
However for one reason or another I can not get enough on prior approval to be able to purchase the highly priced properties in the major cities.
Finding properties to fit the 11 sec solution at thye moment is a challenging occupation.
Regards
Steve,
You indicated that you have found another Ballarat property using the “11” second rule. Since reading your book I have been trying to find that illusive “ripe apple” and am wondering how many towns (i.e. markets) you have a background on and keep an eye on. In that; I’d suggest that you know the Ballarat market quiet well. How do you keep across these markets? Where do you source most of the leads? (i.e. from the Net, local paper or Agents etc)I have two I.Ps in Canberra, one of which is +ve cashflow (more good luck than by design). I have been scanning the local paper and local Net service (Allhomes.com.au) and have not been able to apply the formula in the affirmative to date. I am now just starting to look at regional areas, but to get the feel of these markets will take some time.
Cheers
Hi muppet
how are things going, i purchased a house inDunedinlast week for 58k renting for 170pw i could have paid up to $85k for it to fit the 11 sec rule. So the deals are about even in large NZ cities. But i agree with you the 11 sec rule is not always indicative of a cash positive property. Especially at the lower end of the market, if you were lucky enough to find a 40k property but it was let at 80pw you would be loosing money on this deal. So Muppet i think a bit more time evaluating the true figures (as you suggest)is the best way to go.
Steve
you have to admitt that it is hard to find deals, i’ve been buying since 1997. in the Good Old days you could drive into any town and take your pick. You could offer 30% below the asking price and you would find someone happy to off load the house to you. No times are changed. Speaking to some folk who are driving all over the place doing 100’s of KM’s and not finding one deal, things are really difficult for people just starting out.
westanBut these deals are there – I have found them in NZ – currently in small towns – One of the more successful business people I know (He does a mixture of business start ups for sale and ongoing cashflow business) has aquired 3 killer cashflow properties in wellington over the past 6 years – All of which were bought with the 11 second rule – one of these is on one of the prime intersections in the city and he is in excess of 20% return.
Positive cashflow property is something he ‘dabbles’ in and he has found them in the past. However – he is not looking for anything in central wellington at the moment – In fact it is unlikely to find things that meet the 11 sec rule in high capital gain areas IN THE CURRENT CLIMATE!!
We have to WAIT for a market adjustment before the inner cities become a viable option again – there will be a crash – when I don’t know but it will happen eventually – It is inevitable.until then – off to the small towns we go!!
By the way – Dunedin is a great choice but blowing out fast.
Hi Guys
Thanks for your thoughts on the matter. Here are two more postings from the other site.
Number One
“These rules are too restrictive. An acceptable yield for one person may be completely unacceptable for another. If you have a high income and lots of cash to use as a deposit you may be happy to accept a 7.5% yield. But if you have a low income and little or no cash (so your borrowings are higher) then you may need a 10.4% yield.
It is better to establish the yield you want and apply this to the annual rent of the property you are looking at. So the equation is annual rent divided by desired yield times 100 is your maximum purchase price. If the annual rent was $10,000 and you want a 9% yield, $10,000 / 9 x 100 = $111,000. If the required yield was 10% it would be $100,000.”
Andrew King
Property Coach
visit http://www.PropertyInvestor.Info for Coaching, Software and BooksNumber Two
“All this talk about yield. What about the fact that this property has a body corp? A big one at that. Does a yield calculation take this into consideration? In some areas the landlord pays waste water but not in others. I own flats with common grass areas that I pay to have cut and stand alone houses where the tenant does it.
Why do so many investors want a 10% yield weather interest rates are at 10% or 6%?
Is having lots of money to put into the deal a good reason to justify buying a crap deal?
I guess what I’m asking is wouldn’t it be better to analise each deal on its own merits?
I think Yields are a rough guide that should get you a rough result.”
SteveThese quotes originated from a reply I made to a posting advertising a flat for sale in Wellington in which I made mention of the 11 sec solution.
Keep the opinions coming.Regards
Hi Guys,
A lot of OLD rules. But just like breathing, they seem to work [
]Hi,
We decided to move out of our comfort zone and bought our first IP in March this year and now three more – all positively geared 10 – 12% – in NSW.
This was before we read Steve’s book, so we didn’t know about the 11.sec rule, but must be on the same wavelength as we feel we’ve come a long way since March and now have more options for the future.
After reading Steve’s book we are now even more determined to buy similar properties in the near future – it’s not easy – but we have a plan.
Thanks, Steve, for the wealth of information provided in your book which will assist us on the way. We’re investing in good tenants (we hope).Trish & Mike[
][]Good deals are available in the market. My wife and I have been looking at what’s happening and where since last year and about 3 weeks ago found one that read like this.
Sunnybank in Brisbane. Asking $430,000 with rent just short of $1,000 per week.
We are not in a position to buy but would have gone for it if we were. Sold within 48 hours of the listing being posted. Found it on some obscure real estate site I stumbled on by accident.
Would we have been mad to apply the 11 second rule in this case???
Best wishesPapajoe
In response to the original post I think Steve (the author Steve) goes to quite enough trouble to explain how the 11 second rule fits into his investing – it’s an initial test to filter through a lot of available property very quickly.
I doubt the original poster actually read the chapter properly. I too have heard the rule before, expressed as the 500 rule. Simply multiply rent by 500 (this was from a Canadian property investment video that is around 15 years old).
The fact it is not ‘new’ by no means lessens the value of reading how Steve used this strategy to achieve success.
But the people who got the most out of his book already knew that
Hi all
I think the quote muppet provided by Andrew King has some validity. He says to work out what yield you are looking for, and then apply that to work out the price you are willing to pay.
Fair enough. Steve McKnight maintains the 11 Sec Solution is a ‘filter’. He uses it to indicate what properties in all likelihood will be positive cashflow. Some will drop out when high body corp fees etc. are factored in. Some other properties that don’t quite mee the 11 ss could make it due to lower costs.
It’s just the way you look at it. We can try and discredit others ideas, but why not take them on board and as Joseph McLendon III (a Tony Robbins trainer – really top guy) says, instead of saying ‘I don’t think so!’, say ‘I don…. hmmmmm, something to think about!’
cheers
MelHi,
I strongly disagree with this ‘lowball’ comparision. I use it as a filtering tool, not as an offer tool.
When writing offers you need to work towards a win-win outcome. As such, lowballing, which is usually a win (investor)- lose (vendor) outcome is totally different to the 11 second solution.
Now, as for the claim about small towns… this is more accurate. But when you invest for cashflow, location is secondary to potential income yield and quality of tenant.
We all need to be mindful (me included) that we don’t let prejudice or bias get in the way of spotting a good deal.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve
Accepting what muppet says as good way to verify that the 11 second rule is in the ball park for any given property.
You are absolutely correct in your reply.
You need to have a quick formula that you can apply without a calculator as you are scanning through the “for sale” listings to quickly compile a short list of properties to consider.
As soon as I finished reading your book I jumped on the net and checked out W.A. listings and found 6 properties in 15 minutes that fitted the 11 second rule.
Granted I was a bit lucky that day and for the most part, you usually have to ferret for properties and… it takes time and patience…but if this were not the case…every man and his dog would be investors.
Investing in property would therfore no longer be an option. The idea if investing is to be financially better off than the rest…not equal to them.
Regards
Rob [8D]
muppet- hi!
thanks for posting all the stuff. It’s interesting. re: the first one,it reminds me of ktkiwi who posted here a while back and was slagging off +ve CF investing in small towns, and he turned out (whaddya know…) to have a website that on-sold property deals mainly in Auckland for a fee, a la richmastery.co.nz.
I’ve found that all the major the dissers usually have a hidden or not-so-hidden agenda.
cheers-
MiniHi mini,
you’re either extremely astute [
], or you’ve been peeking on the housemouse site to see who posted that comment.Rod.
Rod C, !! wow!!!!
Yeah – I honestly didn’t peek….!!! that *was* a fair dinkum astute guess – and I know he’s posted there in the past.
Here’s his web site.
http://www.hpc.co.nzActually, i was just there reading his ‘property clock’. Quite interesting!
cheers-
Mini
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