I keep hearing the 1% rule when considering buying rental properties

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  • #86942 Reply

      Does that rule make sense when debating renting v. buying? I keep seeing homes that might be 700k, but couldn’t rent for anywhere near 7k a month. Would it be better financially to rent in those markets when looking for a primary residence?

      #86943 Reply

        No, it doesn’t apply when renting. It’s a quick and easy look to determine if a property is cash flowing.

        #86944 Reply

          The 1% rule is flawed and outdated.

          Not one of my deals has ever come close to meeting that rule but each one gets better than a 10% cash on cash r return.

          If I waited until I found a 1% property I still wouldn’t own one rental.

          But since I go for yield. I reached financial freedom and retired early.

          1% can be found in some markets. A few good markets but mostly was zones.

          It made sense to use the 1% rule in 2010 when there were thousands and thousands of foreclosures to filter through in each market. Are there that many good deals in your market that you need to filter through?

          And the 1% rule is inherently flawed. (Just like cap rates have zero use in residential real estate).

          The 1% duel doesn’t account for:

          • Is there a $500/mo HOA or no HOA at all?
          • Are property taxes 1k/year or 16k/year?
          • Do you need flood insurance?

          I prefer the yield method (and math is just step one out of about 20 steps to make sure a deal is good or bad).

          Don’t forget to take a look at: LLCs for rental properties… worth it?

          #86945 Reply

            Does the really work that way no.

            But you should certainly look at what you can rent for vs the cost of buying to see what makes sense for you.

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