The 1% Rule?

The one percent rule is a guideline frequently referenced by real estate investors when evaluating potential property purchases. This rule of thumb states that the monthly rent should be equal to or greater than one percent of the total purchase price of an investment property.

Basic 101 math, buy a house for 100,000 and rent it for 1000. (100,000*.01=1000)

This is a oversimplified formula that is really just going to help you speak the language of real estate investing. Don’t decide to buy or not buy on this formula. Its a loose guide at best.

Be advised, different regions will have different values and probably will not be 1%. Furthermore, if you are investing in “C” properties than you should expect rents higher than 1%. By the same token, if your investing in “A” properties you may need to accept lower than 1%.

Examples:

1.My average properties bought after the downturn and located in low income areas look more like this- 35,000 purchase price and monthly rent of 1000. Thats over 3%- 35,000*.03=1050

2.My lake property that I purchased for 165,000 rented for 1400 so that ended up being .8%-165,000*.8=1,425.

Example 1 is a “C” property and 2 is an “A” property. Why would anyone buy the “A” property in the first place after looking at these numbers? Good question, the property in the 1st example is propably not appreciating at all but the 2nd one appreciated to 200,000 in just a few short years.

Either you make your money in monthly cash flow or in appreciation.



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