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11 Second Rule
The 11 second rule is an investing rule popularised by Steve McKnight. It is a rough approximation for rental yield. The rule states only purchase a property if:
50% of weekly rent x 1000 is greater than or equal to the purchase price
So for example if the rent is $200 p/w x 50% x 1000 = $100,000 In this example to follow the rule you would only buy the property if the purchase price was less than $100000.
This rule in effect means you would only buy properties with a 10.4% yield.
Limitations
Buying rules of this sort are approximations and should not be relied on as a sole guide to a good purchase. Instead their role is mainly to sort out the wheat from the chaff and to indicate which properties are worth investigating further. The 11 second rule only considers one salient feature (cashflow) and doesn't consider other relevant considerations such as equity or capital gains. It is also quite inflexible in that it doesn't change with the interest rates and while thus not always point towards cash flow positive properties as it is intended.
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Related Discussions on Propertytalk
[http://www.propertytalk.com/forum/showthread.php?t=173 --Monid 03:22, 31 December 2007 (NZDT)
