Statistics. They can be twisted almost any which way- can't they?
That's why due diligence is so important. It's always good to distill the complicated down to the simple.
Which begs the question- is there some simple math that you apply as a starting point to any business venture?
Almost everyone knows the 80-20 rule. That is that 80% of your business comes from 20% of your clients. Note: You can switch the parties involved and still call it the 80-20 rule. Isn't that great?
Let's talk about other percentages. Percentage for facets of your business. Here are examples:
- Spend x% on advertising
- Spend x% time on prospecting
- Purchase a home at x% of market value
I'm sure you have a few percentages that work like these... but I want to talk about your "magic percentages".
When working with investors I have this one: Look for properties at 70% of appraised value, or less.
Sometimes your gut tells you to pay more for a property. If you have strong market information- then go for it. However, if you're not comfortable with a potential property... maybe you don't know the history of the area; the comps are too hard to pull, or... whatever the intangibles... the 70% rule is a good baseline.
In the Phoenix metro area homes and land are becoming difficult to appraise. In some cases banks are requiring up to three independent appraisals. If you're considering property in the valley of the sun, think in that 70% of appraised value zone as your starting point.
What are some of your magic percentages?
That's a really great point, Chuck, about investment properties @ 70%--in my recent investor activity I have aslo found that in Bank-owned properties (which the prices have dropped to sometimes under 50% of tax-assessed value), the 82% rule applies in bidding: regardless what the price-to-value quotient is, an offer of 82% will almost always be accepted.
I love stats!