Hi Everyone,
I’ve recently joined and believe the 11 Second Solution is now out of date and replaced by a second version.
Can somebody please be kind enough to tell me what the new version is with some simple explanation?
Thank you very much,
MarkIt’s a good question and I haven’t found it anywhere here!
I think you will find it is still the best rule of thumb to ensure you are cash positive.
However as some of my investments in the current climate are not this way – I use another variation – which might be considered the 11.578 second rule.
$rent / 2 x $1000 x your best bank interest rate.
Eg (say, best bank rate you can get is 6.84%)
$295 / 2 x $1000 x 1.684 = $248,390 is the top price to pay
Which would give a return of 6.17%. Not great but not too bad in the current climate. This is not a recommendation but is just one that I use as a guide (I do apply the 11 second rule first – cause I know that is the perfect scenario)
Hopefully someone else will post the updated 11 second rule so I can see how my maths works!
Hi Mly,
Not a cashflow investor so take what I say with a grain of salt.
As far as I know the 11 sec rule still exists (someone will come along and prove me wrong) the key message is that properties meeting this rule can be rarely bought ‘off the shelf’ without either some extensive searching or the capacity to spot an underperforming property that can have rent raised to the required level with some creative thinking and application.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Hey There ….
The 11 sec rule is just a yard stick (as Steve puts it) … It was never designed as the be all end all of proeprty procurement tools.
There are still many deals out there that work well within the 11 second rule … however Derek is correct … some need more creative solutions to get them cashflowing.. such as wraps, lease options upgrades to justify rental increases and many more.Trick is to try to find a hidden solution to bring hte yeild up so that you are not out of pocket … if it not by increasing hte rent .. then it could be thfrough lowering costs to get you over the line.
Cheers,
KiwiWhy Rent? Rent 2 own!
http://www.rent2ownaus.comHi
First time user so forgive me if i am off base with my answer but from what I can gather in the current market Steve now works more on the Cash on Cash Return basis than the second solution.Steve always was looking at Cash on Cash return – how much cashflow in compared to personal cash required to put into the deal. The resulting percentage can then be comapred to current rates elsewhere e.g. bank, stock market.
Derek has got the idea – to get cash flow pos requires value adding.Dale
in my view the 11 sec solution was only a quick way to eliminate all the dud deals.
those that dont come close are eliminated to save time doing numbers on those that will never work while spending quality time doing hard numbers on those that MAY work.
more extensive number work needs to be done on those deals passing (or close to) the 11sec solution. it is just a formula to stop wasting time on deals that will never work.
I use a similar one that I ‘borrowed’ from Dean Parker (I hope he hasn’t copyrighted it!) for my buy/reno/sell deals is that add 30% to the buy price on a 10% reno & that should sell in a mid range for that market price (does that make sense? sorry Dean, you do this much better!) I will try to explain. if i can buy for 300k, spend 10% on reno (30k) I need to be able to sell for about 400k without this price reaching the upper end of the appropriate market (so as to stay within the confines of the high % of population)to be confident of making a profit worthy of the risk. Now this is obviously not the be all & end all rule (as there are $opportunities in less or more than 10% renos & higher & lower than 10% renos) but is a really good guide to eliminate all the deals that will never work without spending/wasting time on them. I thin k the 11 sec solution is just like this & used as a timesaver is marvellous but as a RULE can be dangerous.
I hope this helpsTroy
TroynBec
You can have more than you’ve got because you can become more than you are
Can I say, don’t depend on Silhouette to get you there. The numbers provided are seriously flawed.
$rent / 2 x $1000 x your best bank interest rate.Eg (say, best bank rate you can get is 6.84%)
$295 / 2 x $1000 x 1.684 = $248,390 is the top price to pay
If using this as a rule, an Interest rate of 2% would have you offering $177k for an IP – but, if the Interest rate was 8%, you could spend up to $265500.
Not a good idea at all – methinks a rework is needed to THAT rule
Benny
I hardly think they are seriously flawed…the maths still work.
It’s been a while since I got 2% on a mortgage (like never) – still, if you can get 2% and can get a IP at $177K rented at $295, that would give you 8.6%; or if you paid $265K at 8% then the return is around 5.7%.
So, as I said in my original post “Not great but not too bad in the current climate.”
Anyone who solely uses mathematical formula to decide on buying IP needs to reconsider their investment strategies.
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