247 | Zach and Marilyn Talk Real Estate Investing | Paula Pant

<ul> <li>Continuing the financial independence case study series, Households of FI family, Zach and Marilyn are a married couple with young kids. Using Dave Ramsey's baby steps, they no longer have any debt but have wondered what to do next. Looking to explore investing in real estate, ChooseFI connected them with real estate expert, Paula Pant.</li> <li>Though Zach and Marilyn once lived below the poverty line, they managed to pay off their debt, including student loans, a car loan, credit cards, and medical debt. During that time, they gained a little experience with buying and selling property. Since that time, Marilyn has gone back to work and their income almost doubled.</li> <li>Having earned a profit on some previous homes they flipped after living in and renovating them, it's encouraged them to use the skills they've acquired on future investment properties.</li> <li>Where they currently live in Cedar City UT, the market is a bit inflated and are concerned about the 1% rule where monthly rent should equal 1% of the total purchase price.</li> <li>Paula explains that if a property rents for 1% of the purchase price, that is 12% per year at full occupancy. Since it is estimated that operating costs will be roughly 50% of the monthly rent, 6% of the purchase price is what if leftover as an unleveraged dividend on the property. Assuming no increase in the value of the property, but keeps pace with inflation, that's roughly another 3% based on historical averages, the property gives a 6% dividend and 3% inflationary increase, for a total return of 9%. It is a rough way to determine if a property is worth looking into further</li> <li>Exceptions for the 1% rule of thumb may be made when operating costs are expected to be less than the 50% average, such as if property taxes are extremely low or if it is a newer home.</li> <li>Other exceptions to the 1% rule can also be made when buying a multi-unit home where you live in one unit and rent out the others. In those cases, personal criteria for where you want to liv