Do you follow 1 percent rule
Member since 2019 · 144 posts · 46 votes
I am reading the book about out of state investing and was wondering, do people follow the 1 percent rule? I had narrowed down my search to a few cities for where I want to invest in a multi family unit and hardly any of them meet this 1 percent criteria? In Atlanta, Houston, Austin, Baltimore, Cincinnati... barely any 1 percent?
I am reading the book about out of state investing and was wondering, do people follow the 1 percent rule? I had narrowed down my search to a few cities for where I want to invest in a multi family unit and hardly any of them meet this 1 percent criteria? In Atlanta, Houston, Austin, Baltimore, Cincinnati... barely any 1 percent?
Throughout the Atlanta area it is significantly hard to find a 1% rule unless you are getting a direct deal from a seller that has a mispriced property. Pretty rare to find one and it doesn't take into consideration much of the effect of rates increasing which still effects your projected cash flow. I have met people that don't care about any sort of timeline and try to build their portfolio and or business off of home runs, but that's no way to build. If you aim for the singles or doubles (deals that are under 1% but still make sense) then you'll be poised to build/grow more successfully.
@Michele Velazquez check copyright date, and then think of what part of the market cycle we were in during publishing. A lot of older books have really good info, but to take a rule like that and run with it will have you standing on the sidelines in this market. Rules are just to help weed out properties, you still have to take the time and underwrite the deal to see if it works. At that point you can see how those rules compare.
Best of luck.
Regardless of when the book was written, the 1% rule was never a meaningful figure. It's a top line number that says nothing about ROI. It becomes even less meaningful when comparing opportunities across different states with different operating expenses. 1% in markets with high property taxes or insurance rates will produce a far different ROi than 1% in states with low taxes and insurance rates.
I invest in Cincinnati and I often use the 1% rule as a rule of thumb metric. There are of course countless variables that will make or break a deal which is why this is a rule of thumb. At a glance, I can look at a property and see that the market rents are 800/door/month and my all in costs for purchase and rehab are 80k/door. It meets the 1% rule, and therefore could be worth putting the time into underwriting. If the market rents were 600/door and they want 90k a door, then I know without even looking its probably a bad deal. That is how I would use the 1% rule as a metric. For me, the biggest factor after determining the 1% rule is what are owner paid utilities? If its a 1% deal with owner paid heat, then its likely still not a good cash flow deal, if its 1% with tenant paid heat or all utilities, it could be a great deal. Then I would underwrite it completely.
I invest in Cincinnati and I often use the 1% rule as a rule of thumb metric. There are of course countless variables that will make or break a deal which is why this is a rule of thumb. At a glance, I can look at a property and see that the market rents are 800/door/month and my all in costs for purchase and rehab are 80k/door. It meets the 1% rule, and therefore could be worth putting the time into underwriting. If the market rents were 600/door and they want 90k a door, then I know without even looking its probably a bad deal. That is how I would use the 1% rule as a metric. For me, the biggest factor after determining the 1% rule is what are owner paid utilities? If its a 1% deal with owner paid heat, then its likely still not a good cash flow deal, if its 1% with tenant paid heat or all utilities, it could be a great deal. Then I would underwrite it completely.
I agree. The 1% rule helps with measuring risk. You know that if you can meet the 1% rule normally that means you can cash flow on the property. Now if you are investing for appreciation then the 1% rule isn't an important metric. I too invest in Cincinnati and just closed on my 2nd rental last Friday and both are in areas that meet the 1% rule because my focus is cash flow and properties in areas with a great school district and good medium income.
I invest in Cincinnati and I often use the 1% rule as a rule of thumb metric. There are of course countless variables that will make or break a deal which is why this is a rule of thumb. At a glance, I can look at a property and see that the market rents are 800/door/month and my all in costs for purchase and rehab are 80k/door. It meets the 1% rule, and therefore could be worth putting the time into underwriting. If the market rents were 600/door and they want 90k a door, then I know without even looking its probably a bad deal. That is how I would use the 1% rule as a metric. For me, the biggest factor after determining the 1% rule is what are owner paid utilities? If its a 1% deal with owner paid heat, then its likely still not a good cash flow deal, if its 1% with tenant paid heat or all utilities, it could be a great deal. Then I would underwrite it completely.
I agree. The 1% rule helps with measuring risk. You know that if you can meet the 1% rule normally that means you can cash flow on the property. Now if you are investing for appreciation then the 1% rule isn't an important metric. I too invest in Cincinnati and just closed on my 2nd rental last Friday and both are in areas that meet the 1% rule because my focus is cash flow and properties in areas with a great school district and good medium income.
I invest in Cincinnati and I often use the 1% rule as a rule of thumb metric. There are of course countless variables that will make or break a deal which is why this is a rule of thumb. At a glance, I can look at a property and see that the market rents are 800/door/month and my all in costs for purchase and rehab are 80k/door. It meets the 1% rule, and therefore could be worth putting the time into underwriting. If the market rents were 600/door and they want 90k a door, then I know without even looking its probably a bad deal. That is how I would use the 1% rule as a metric. For me, the biggest factor after determining the 1% rule is what are owner paid utilities? If its a 1% deal with owner paid heat, then its likely still not a good cash flow deal, if its 1% with tenant paid heat or all utilities, it could be a great deal. Then I would underwrite it completely.
I agree. The 1% rule helps with measuring risk. You know that if you can meet the 1% rule normally that means you can cash flow on the property. Now if you are investing for appreciation then the 1% rule isn't an important metric. I too invest in Cincinnati and just closed on my 2nd rental last Friday and both are in areas that meet the 1% rule because my focus is cash flow and properties in areas with a great school district and good medium income.
First one is in Monroe 45050 area, second one is in Batavia 45244 area.
That is awesome, I live in 45244 near Milford. I love Clermont County.