All Topics / General Property / 11 second solution??

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• Chris.
Participant
@chris.
Join Date: 2003
Post Count: 4

Hi, i am young and naive,
can someone tell me, is the “11 second solution” unique to Australia? Ie, a place like South Africa has extremely high interest rates and the formulae would therefore not work there???
If thats the case how can i adapt it
tks
chris

melbear
Member
@melbear
Join Date: 2003
Post Count: 2,429

Hey Chris and welcome.

I would say that the 11 ss is not unique to Aust. It is used purely as a filtering tool. If you have ever looked at anything Dolf de Roos does, he talks about looking at 100, getting interestd in 10, serious about 3, and maybe buying 1.

The 11 ss can help you cut out those 90 odd you’re not interested in. If somewhere like South Africa has higher costs, and therefore would need higher rents to be +ve cashflow, you might need to look at a higher yield.

Perhaps you would need to divide the rent by more than 2.

ie Rent/3 * 1000 = Purchase Price with yield of 15.6% etc. etc.

Cheers
Mel

Fudge111Broz00
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@fudge111broz00
Join Date: 2003
Post Count: 245

Hi Chris

Melbear is right, it would be all comparative to the country where you live.

I’m sure there would be some countries out there where the 11 second rule could be maybe less then double the price/1000.

I mean, the 11 second rule is only a very rough guide and you cannot purchase property just from working out the 11 second rule, however, it is extremely useful for as melbear said, filtering out houses you don’t even need to bother with at all.

Thanks

Fudge111[]

Chris.
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@chris.
Join Date: 2003
Post Count: 4

Excellent!

thanks very much guys!

Member
Join Date: 2003
Post Count: 23

As a total newbie from the UK could someone explain the “11 second rule”?

DinoWeb
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@dinoweb
Join Date: 2003
Post Count: 59

11 second rule.

Divide the estimated weekly rent by 2 and then multiply by 1000 to give a purchase price that should be cash flow positive.

eg Est rent = \$200/wk
divided by 2 = \$100
multiply by 1000 = \$100,000

This gives you a 10% return on the purchase price.

ie allowing for 2 weeks vacancy per year
\$200/wk x 50wks = \$10,000
\$10,000/\$100,000 = 10%

This is how it is explained in Steve’s book. He uses it as a filter only to quickly remove the vast majority of properties that will never have +ve cash flow.

Personally, I can’t find many properties that even come close to this, so I assume the following.

Can some one please correct me if I am wrong.

You can make more properties fit the 11 second rule if you add a deposit amount. Ie. for the \$100,000 dollar example above, a property worth \$125,000 would fit if you had a \$25,000 deposit for the loan.

If you do add in a deposit amount, you then need to determine if you will actually make money as opposed to investing that deposit some other way. eg for me, any deposit money is equity in my home loan which I currently pay at 6%. Therefore using a \$25,000 deposit, the IP would need to clear \$25,000 x 6% = \$1,500 per year to make me money.

It then becomes even more complicated if you want to take tax and capital growth into account.

Anyway, as I said erlier, the 11 second rule is a filtering tool to help identify properties that are worth further investigation.

It’s up to you how you use it.

Dino

“If you don’t know where you are going, every road will take you there.”

DinoWeb
Member
@dinoweb
Join Date: 2003
Post Count: 59

Sorry, forgot to mention in reply to the original email.

Yes the 11 second rule only applies where interest rates are substantially below 10%, since it only represents a gross income of 10% of the loan value.

If interest rates rise to 8% or more than you will have substantially less of your gross income to cover all other expenses.

Dino

“If you don’t know where you are going, every road will take you there.”

melbear
Member
@melbear
Join Date: 2003
Post Count: 2,429

Dino, the deposit amount you have won’t change the 11 second solution at all. What it will change is your Cash on Cash return.

I agree with you on ‘opportunity cost’ of that extra deposit too, it’s really got to be worth it.

Cheers
Mel

llamas
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@llamas
Join Date: 2003
Post Count: 3

Since i purchased the o/130 properties I have spent hours on the internet and examining regional country areas, and to date have not found 1 residential property that meets the 11 second solution . The rents are not high enough, to cover the purchase price. I think the sale prices are to high to achieve a positive cash flow. Any ideas of where else in victoria I should be looking

mmerlin
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@mmerlin
Join Date: 2003
Post Count: 11

llamas if you are looking interstate, you might try Warwick in Queensland. I’ve heard a few properties come “kind of” close to meeting the 11 second solution criteria. Good cashflow however capital growth might not be amazing.

regards,
MM

http://www.rese.com
(The Australian) Real Estate Search Engine

scampush
Member
@scampush
Join Date: 2003
Post Count: 26

come on guys!!!!!

there are still propertys that fit the 11sec rule on the internet, expand your search, search the whole of australia for properties under \$100k would be a good start[:0)]

remember not all properties are on the net, especially the cheapies, why would the agents bother putting in too much effort for such a low commission?? Approach agents, leave your name and number, but be ready to purchase when they call you …….. have your deposit and financial approval ready, there’s no point even looking to buy if you don’t have the funds!!

The only reason I haven’t got number 2 IP is lack of deposit

THEY ARE OUT THERE[][][][]

cheers
scampush

sunshine
Member
@sunshine
Join Date: 2003
Post Count: 63

Hi. When looking on the net, make sure you check the ‘sold’ site as well. It was interesting to see relatively cheap properties at Mount Murgon, then I checked the ‘sold’ properties and nearly the whole town must have sold! I would so love to know if all thses properties have been bought by investors because they are cheap, and if so, who is going to rent them in this town. So dont forget the tip about checking the stats for investor owned percentages, for in these regional towns that are getting snapped up by investors, wouldnt we be changing the demographics of the town quite markedly? I would be quite interested to hear views on this, because it is one thing that currently makes me wary of investing in a small regional town.

Sunshine

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