ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How to Become a Real Estate Investment Millionaire and Achieve 30 Percent Returns!

Updated on August 6, 2013

Rental Returns and Percentages

Solid investment returns in 2013 are important for all future real estate millionaires!

How much should the rent returns target be for residential rentals in order to keep from losing properties one has worked hard to acquire?

The Problem: Potential Vacancies

What if a landlord has four rentals and they all go vacant at once? This can and does happen. In good times the rents need to profitable enough for the landlord to place money in reserve for a rainy day.

Articles on real estate investing rarely discuss making the payments once one owns property perhaps because this involves using algebraic calculations and it may be uncomfortable for some.

Anyone reading this hub probably owns or will own rental property. Many who acquire properties are not able to retain them because of underestimating the potential rental returns; the properties should bring to cover the cost of a mortgage, insurance, and maintenance, and in some cases property management.

This does not imply that buyers are unable to add and subtract---everybody knows if there are $1000 in monthly expenses one needs at least $1000 from somewhere to pay the bills..... where is that $1000 is going to come from if a property goes vacant? What rental returns are needed to acquire money to develop reserves?

Set Benchmarks

Few sources discuss how much rent should be relative to the expenses for property purchases. When it is mentioned, often it is in the context of formulas using ROI, or rent CAP. These formulas may be helpful to some people but others may find it easier to use the 1.3 formula. The 1.3 formula means that the desired rental returns should be 1.3 times the total monthly outgo. One does not need a fancy calculator for this. Many people could estimate this in their heads. Lots of people have no idea what a CAP rate is, but if one says the rents should be 30% more than the outgo, they know what that means.

What does one gain by having the 1.3 rent factor? For simplicity say there are four identical properties. They could be single family homes, condos, multiple residential properties, doesn't matter. If one of the four goes vacant, then with the rent factor of 1.3 a landlord is still getting exactly enough rent to pay the vacant fourth property's expenses. In good times one can put aside the fourth property's excess money and save it for bad times. For more on this check out real estate books by Tyler Hicks. This man discusses the 1.3 rent factor and he has probably saved many readers from losing their properties.

My Hero Tyler Hicks

This man, Ty Hicks helped me get 30% returns!
This man, Ty Hicks helped me get 30% returns! | Source

Target Properties

So now someone can go right out and buy property that fits the 1.3 rule, right? Maybe..but probably it won't be that easy in most areas. Commonly, the bigger the house or the more square feet a property has, the harder it is to achieve the Rule of 1.3. What does that mean to an investor?

It means properties that are not showplaces or properties with smaller square footage will probably pencil out better than larger, more attractive properties. In the case of single family homes, it means nicer homes in fabulous areas probably will not pass the rule of 1.3. In times of rapid property inflation people were able to buy and sell these properties so quickly that they didn't care about cashflow. Now, cashflow is more important. Translation: sometimes a house, condo, townhouse, multiple family property in a not so glamorous location will cashflow better and is a better target for the investor. It may not offer the chances for as much appreciation, but all things being equal, this offers the chance to satisfy the Rule of 1.3 for residential rental returns.

Here is a real example: say there is a one bedroom condo in Winston-Salem, North Carolina and the market rent for this 650 square foot condo is $475/month. The condo dues are $100/mo, the taxes are $40/mo, fire insurance is $15 a month, and the mortgage is $200 a month. Here, the 1.3 rule is satisfied because the expenses total $355. Take $355 x 1.3= $461 and the rent of $475, which exceeds the required $461/month. The monthly “profit” before depreciation is $461 minus $355=$106. The gross is 70 cents per square foot. The net is16 cents per square foot.

Suppose in the same condo complex the two bedroom condos are 800 square feet and the market rents on those is $570. Say the condo dues on the two bedroom unit are $120 a month, the fire insurance is $15 a month, the taxes are $50 a month, and the mortgage is $275. The expenses are $460 a month. $460 x 1.3=$598. But the rent is less than $598 --- we only have $570 rent. The rule of 1.3 is NOT satisfied here. The net just under 14 cents per square foot.

Taking this a step further: one has the monthly income from the two bedroom condo at $570 minus monthly expenses of $460=$110 profit. The income from the one bedroom condo is $475 minus $355= profit of $120/month. One sees how the profit per square foot on the first condo is higher than on the second. Realtors say over and over not to buy one bedroom units but everyone is looking for one bedrooms that are affordable.

Condos are perfect for the newly divorced, the senior citizens on fixed incomes, and students in college. Also the entire condo purchase price can be depreciated on the taxes whereas with a single family home, where the home value may be only 40 percent of the purchase price where the lot is 60 percent of the value only the home value can be depreciated on taxes. Bottom line, one may have better cashflow in a condo or a small house than with larger properties.

Let's go back to the 1.3 rule and calculate another example: take a small house with principal, interest, taxes, and insurance of $700. Say the rents are $950. The net profit before deprecation is $250. This house fits the 1.3 Rule.

On the other hand, suppose one has a larger house, and the rent is $2250, and the expenses are $2150--the profit is just $50. This house does NOT fit the 1.3 Rule. If it did rents would have to be 1: 1.3 x $2150=$2795. With the small house, one can save the $250 a month for a year and if it goes vacant, then one has a $3000 cushion of safety to pay expenses. With a cushion like this one could make payments for 4 months if one had to., or they could have 2 months of vacancy and have to replace the stove for say, $500, and they would still have $1100 left over.

With the large house, if one has to put one small repair in place, they find themselves in the negative. If someone can manage to save the $50 a month, then in one year one has just a $600 cushion of safety....plainly one can see it will take 5 years of “no vacancy” to build up the safety net of the smaller property that only took only one year to acquire.

Here is another link to help determne whether one has the right cashflow to make a profit and become a future real estate millionaire: : Happy Investing!

Copyright 2012


    0 of 8192 characters used
    Post Comment
    • Doodlehead profile imageAUTHOR


      6 years ago from Northern California

      Doesn't take that much. Acquire $400,000 of debt and a face value of $500,000 of property and pay it off. This is helped by inflation and the Rule of 72. With 4 percent inflation money doubles at 72 divided by 4=18 years.

      Your $500,000 of property will be worth $1mil in 18 years. If you are young buy less and hold on longer.

      I hope this answers your question "roundabout".

    • shockblog profile image


      6 years ago from London

      nice article..but have u become a millionaire yet ? haha

    • sweetie1 profile image


      6 years ago from India

      It is wonderful insight of how people in other country buy property for. In India hardly anyone buy for rent. They usually buy to live in or for capital gains, as even though the rents are high but it is not easy to get the property vacated because of laws totally in favour of , so people do not rent it.

    • Doodlehead profile imageAUTHOR


      7 years ago from Northern California

      Neophonic--thatnks so much for your nice words. Here in the US may be a good time to invest in real estate. Now people are saying the offshore money may be coming back here and throw the real estate prices up combining with inflation and nothing else good to invest in.

    • neophonic profile image

      Jakub Dubec 

      7 years ago from Europe

      I should read it once more, the articles you write are so Pro! It is pretty that somebody ( probably You ) can get 30% returns. Keep rockin :)

    • Property-Invest profile image


      7 years ago from London

      Excellent property investing articles with practical advice. One has to have a Guaranteed Property Profit System.

    • profile image

      Susan Conner 

      8 years ago

      Great article; well written and easy to understand. Thanks.

    • Max Clayne profile image

      Max Clayne 

      8 years ago

      Very useful advice in renting.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)