The 7% Rule – CT Homes LLC (2024)

Real Estate Investors: The 7% Rule

Posted by JD Esajian // September 30, 2014

The 7% Rule – CT Homes LLC (1)

There are a lot of “number rules” thrown around in the real estate world. The one I am about to introduce you to may be the most important of them all. It has often been said that 20% of the players do 80% of the business: the 80/20 rule as it is sometimes referred to. However, this contrast has reportedly become even starker in the real estate world. According to the data, just 7% of real estate agents do 93% of the business. Some figures suggest thousands of Realtors don’t do any deals in a year, with many of them failing to renew their real estate licenses even once!

This announcement has huge ramifications that can spread throughout the real estate industry, directly impacting the performance and success of individual property investors. So why it is so significant? Why does it matter to you? How can investors best capitalize on it?

The first and most obvious question is if you fall into the 7% category, or the rest?

A good start for getting to the next level would certainly be learning the benchmarks and setting new goals to start owning more of the business in your area or niche. Then expand to meet your goals. The same ratios no doubt apply to real estate investors, but it also matters to investors which Realtors are doing all the business. In some cases, these may be your top competitors. You need to know who is just a distraction and who may be worth defending against, or at least positioning against.

This is perhaps even more important when it comes to trying to work with Realtors. Some real estate investors would never dream of it. However, many find working in collaboration with Realtors is highly profitable, if not a necessity. Like mortgage brokers and title insurance companies, some real estate investors expend substantial resources trying to connect with and do business with real estate agents. However, it can be hard to gain their attention, spur action, and earn their business. This comes with time and money costs that many may not be prepared for.

The key is to not invest in those that are not in the 7% I mentioned earlier. This can result in literally throwing years of effort and earnings down the drain. So you need to know who is really doing the deals, controlling the buyers and sellers, and influencing deal flow.

Real estate investors can’t just rely on spotting bench ads, trolling Realtor websites, or watching which cars they have leased. Find out who is worth working with, and who isn’t. Who is worth pursuing, and if necessary wooing. If you are going to invest in marketing and follow up, make it with these agents.

However, some real estate investors might have already had the “eureka” moment, and realized that the bottom 93% might have some value too. At least some of them. No doubt, other savvy and well capitalized competitors are focusing on, and are bombarding those at the top. Many of those individuals and firms will also have very deep relationships and other ties which can be hard to make a dent in. However, there could be many other investors and Realtors with great potential who are being ignored, and who are probably looking to connect and collaborate with others on their way up too. This group may be far more receptive, easier to work with and deliver a better ROI.

There can be many advantages of taking the time, and making the effort to work with these Realtors. They could certainly be among the most loyal if given a chance. Good relationships forged early could result in long term relationships that continue to deliver ongoing leads, referrals and deals every month.

It is important for real estate investors to be wise with their time, and choose the right people to work with. Evaluate why these candidates haven’t made it yet, and if they have what it takes. Perhaps they just got into real estate but have huge potential waiting to be unleashed. Maybe they just need a little mentoring, or a chance. Test them out on some smaller deals and see how they perform.

They need to be capable, motivated, and “coachable.” Legendary investor Mark Cuban has reportedly said that in contrast to popular opinion, it isn’t money or connections that make individuals successful, but more often their willingness to out-learn and outwork their competition. This is certainly true in sports, entrepreneurial start-ups, and definitely in all aspects of the real estate world. The top 7% are hustlers. If they don’t know something, they’ll learn it. If the heat is on, they’ll put in the extra hours to make it happen. You don’t have to know everything, everyone, have all the money, or talent, but if you’ll apply those two principles, you’ll do very well in real estate.

The 7% Rule – CT Homes LLC (2024)

FAQs

What is the 7% rule in real estate? ›

It has often been said that 20% of the players do 80% of the business: the 80/20 rule as it is sometimes referred to. However, this contrast has reportedly become even starker in the real estate world. According to the data, just 7% of real estate agents do 93% of the business.

Why is there a 70% rule in real estate? ›

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

What is the 80% rule in real estate? ›

In the realm of real estate investment, the 80/20 rule, or Pareto Principle, is a potent tool for maximizing returns. It posits that a small fraction of actions—typically around 20%—drives a disproportionately large portion of results, often around 80%.

What is the number one rule of real estate? ›

What is the 1% rule in relation to the property's purchase price? The 1% rule states that a rental property's income should be at least 1% of the property's purchase price. For example, if a rental property is purchased for $200,000, the monthly rental income should be at least $2,000.

What is the rule of 7 in real estate? ›

In fact, in marketing, there is a rule that people need to hear your message 7 times before they start to see you as a service provider. Therefore, if you have only had a few conversations with the person that listed with someone else, then chances are, they don't even know you are in real estate.

What is the 7 percent sell rule? ›

Always sell a stock it if falls 7%-8% below what you paid for it. This basic principle helps you always cap your potential downside. If you're following rules for how to buy stocks and a stock you own drops 7% to 8% from what you paid for it, something is wrong.

What are the 5 golden rules of real estate? ›

If you follow these 5 Golden Rules for Property investing i.e. Buy from motivated sellers; Buy in an area of strong rental demand; Buy for positive cash-flow; Buy for the long-term; Always have a cash buffer. You will minimise the risk of property investing and maximise your returns.

What is the golden formula in real estate? ›

In case you haven't heard of the so-called Golden Rule in house flipping, the 70% Rule states that your offer on a property should be no greater than 70% of the After Repair Value (ARV) minus the estimated repairs.

What is the 50% rule in real estate? ›

The 50 Percent Rule is a shortcut that real estate investors can use to quickly predict the total operating expenses that a rental property investment is likely to generate. To work out a property's monthly operating expenses using the 50 rule, you simply multiply the property 's gross rent income by 50%.

What is the 8% rule in real estate? ›

You want to earn a net income of $8,000 a year if you invest $100,000 in the property, he says. The reasoning behind the 8% rule is that it compensates you for the risk and relative illiquidity of your investment.

What is the 1% rule in real estate? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

What is the 36% rule in real estate? ›

According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment.

Is it better to sell a paid-off house or use it as a rental? ›

Every situation is slightly different, but it mostly boils down to profitability and whether or not you really want to be a landlord. Your home may be a great place to rent, but if you don't want to manage it, it is probably better to sell.

How much profit should you make on rental property? ›

Keep in mind, when it comes to real estate cash flow, calculating your expenses and rental property income will be your number one key to success. Anything around 7% or 8% is the average ROI. However, if you'd really like to succeed, you should always aim higher at around 15%.

What are the three rules of property? ›

They discovered that the super successful companies used three doctrinal rules. Better before cheaper. Revenue before cost. There are no other rules.

What is the 7 investment rule? ›

The 7-Year Rule for investing is a guideline suggesting that an investment can potentially grow significantly over a period of 7 years. This rule is based on the historical performance of investments and the principle of compound interest.

What is the 70 30 rule in flipping houses? ›

The “70” part of the 70 percent rule refers to the discount that an investor must purchase the property at, before repairs, in order to have an adequate margin of 30% that covers the transfer and holding costs, as well as any profit.

What is the rule of 7? ›

The Rule of 7 asserts that a potential customer should encounter a brand's marketing messages at least seven times before making a purchase decision. When it comes to engagement for your marketing campaign, this principle emphasizes the importance of repeated exposure for enhancing recognition and improving retention.

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