What is the 100:10:3:1 Rule?
These days, there seem to be hundreds of different “rules” investors swear by when it comes to purchasing real estate. The exact rule you use will depend on many factors, namely the type of property you intend to buy, where it is located, and the current housing market in that area. Today, we will take a look at the 100:10:3:1 rule, and when it might be an effective strategy for you.
Breaking Down the 100:10:3:1 Rule
The 100:10:3:1 rule is a strategy first proposed by Dr. Dolf de Roos in his book, “Real Estate Riches.” It is a series of simple steps designed to help a real estate investor select the most profitable property:
The first part of this rule entails looking at 100 properties that have general potential and meet the buyer’s standards of location, overall cost, square footage, etc.
Of the 100 properties initially rounded up by the investor, ten must be deemed suitably profitable to make an offer on.
Once the buyer has whittled the list down to ten potential properties, he or she must then make an offer on 3 of them.
1 Offer Accepted
The final part of the 100:10:3:1 rule states that, of the 3 offers made by the investor, he or she can expect one offer to be accepted.
Of course, more than one offer may be accepted, which gives the investor the choice between the more profitable of the two (or three).
What if No Offers are Accepted?
The 100:10:3:1 rule depends upon at least one accepted offer. So what happens if an investor loses out on all three offers he or she has made on those carefully selected properties? The answer is: lost profits. In real estate, time is money. The 100:10:3:1 rule requires a significant amount of research and time in order to target the perfect property. Finishing that process without an accepted offer can mean tens of thousands of dollars in lost profits. For this reason, de Roos’ strategy is often considered appropriate for only seasoned real estate investors.
Don’t Lose an Offer on a Property
You can increase the likelihood of an offer being accepted with a couple ways. Whatever you do, don’t get caught in a bidding war: you want to secure the property at the best price, not at all costs. Despite the frustration, losing the property to a higher bidder may be better than spending too much on it.
So how can you increase the chances of your offer on a home being accepted? Whenever possible, offer cash. Cash offers are appealing to sellers, since the sale has no chance of falling through due to financing and other contingencies. That being said, you don’t want to tie up all your capital into one property. You will also need cash flow if you intend to rehabilitate the property, so keep that in mind as well if you plan to offer cash.
Hard Money Loans vs Cash Offers on a Property
The next best thing to offering cash on a property using the 100:10:3:1 method is a hard money loan. Hard money loans can close quickly, which is appealing to both sellers and buyers. Hard money lenders are also less likely to back out of a financial agreement last minute, as some banks have been known to do. This adds another element of security to a property seller, knowing they can close quickly and without any surprises.
Hard Money Loans in Colorado
Whatever rule you are applying in your real estate investment journey, hard money loans can be a great option to secure properties quickly. Pinetree Financial Partners offers hard money loans on all sorts of projects in the state of Colorado, from mixed use properties to new constructs. Give us a call today to get started.