The 80-20 rule in real estate investment is a guiding principle that emphasizes the importance of thorough due diligence and risk assessment.
According to this rule, an investor should aim to have at least 80% of the project funded through external sources, such as loans or partnerships, while contributing a minimum of 20% of their own capital.
Additionally, the investor should seek a minimum of 20% positive cash flow after accounting for all expenses, including mortgage payments, maintenance, and vacancies.
Adhering to the 80-20 rule allows investors to reduce their financial exposure, leverage external funds, and ensure a steady income stream. By applying this rule, real estate investors can maximize profitability while minimizing potential risks.
The takeaway:
80-20 rule. Use most money from others, and a little of our own. Make sure rent is 20% more than expenses. Smart investors win!