the 500 Rule

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From: James C


Hi I'm a new user & have been reading through the archives. Can anyone explain the "500 Rule" please as my searches have not found any detail.

Thank you
 
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Reply: 1.1
From: Cathy Baxter


Hi

I was looking for this as well there is a reference to it and the 800 rule apparently this is one of Geoff1's rules from the old archives. I'd love to know what it is.

Cathy
 
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Reply: 1.1.1
From: Bernie Phillips


Hi James/Cathy

I believe the 500/800 rule goes something like this.

Take the potential weekly rent for the IP you are researching. Multiply it by the magical figure (500 or 800) and the result is your target purchase price. You could also work it the other way if you want to know what rent you would need to get to meet your rule.

If you can get the property for your target purchase price then go for it otherwise move on to the next IP. Its up to you what magical number you go by.

If anyone else has a different understanding of the rule please let us know

Cheers

BP
 
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Reply: 1.1.1.1
From: Nigel W


Spot on Bernie. I think the rationale behind Doidgy's 500 rule is that it equates to getting the purchase price back, via rent, over a about a 10 yr period.

I suspect Geoff1 is now far too busy making serious cash from 1) renovating and 2) running seminars with Paul Eslick on how to do 1) to contribute much to the forum any more. :^)

Cheers
N.
 
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Reply: 1.1.1.2
From: James C


Thanks for your explanation Bernie, I think my own rule is more on the 800 side than 500 unfortunately.

cheers

James
 
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Reply: 1.1.1.2.1
From: Trina Blum


Hi,

I don't know what the 500 rules is but I was told by Rixter that the you use the 800 rule to work out if a property is returning 6.5%. Multiply the weekly rent by 800 and that is the price you should pay (or less) for the property to be returning 6.5%. i.e. $100/w rent x 800 = $80000 so you would not pay anymore than this. Rixter may be able to explain it better and may even know what the 500 rule is.

Regards
Trina
 
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Reply: 1.1.1.2.1.1
From: Paul Hendriks


Hi All

What a fantastic rule, the 800 gives us a slight chance of success, but the 500 seems a very, very slim chance of finding an IP.

Yes Trina, it looks like your right in saying the 800 rule gives you around 6.5% return, & on my calc's it looks around 10.5% for the 500 rule. Can someone confirm this?

Anyway this certainly gives us something to go for, & I can see myself punching in the no's now before making an offer.

Thanks for bringing this thread up.

Cheers
Paul
 
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Reply: 1.1.1.2.1.1.1
From: Sim' Hampel


In Sydney when comparing rental prices and purchase prices, in so called "middle ring" suburbs, you were (once) pretty safe using the 1000 rule - simply take the rent per week and multiply by 1000 to get the expected purchase price (or vice versa to get the expected rent). This gives you a 5.2% gross yield. Of course in the current market, you would be quite lucky to get over 4% gross yield !

The rule of 500 will give you a 10.4% gross yield target. Rather than muliply by 500, I do find it easier to divide by 2 then multiply by 1000. Of course, if you are managing to find properties in Sydney that meet the rule of 500 then DON'T TELL ANYONE... buy them all yourself, because they are pretty darn rare ;-)

Of course, if you need help, just drop me a line and I'll take a few off your hands !

 
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Reply: 1.1.1.2.1.1.1.1
From: Scott Elsom


I'm with Sim...divide rent by 2 and add three 0's. eg. rent of $150 / 2 = $75. Add 000 = $75000 purchase price.

Working it back the other way...to get a GRR of roughly 10%...double the purchase price and drop the three 0's. eg. purchase price of $100000 * 2 = $200000 then drop the 0's = $200 per week.

To be able quickly calculate these figures in your head when talking to an agent or vendor can really put throw them. It also lets them know that you know what you are talking about.
 
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