1% rule on multi family house

18 Replies

hello everyone my question is, how does the 1% rule work on multi family properties. I live in western Massachusetts and I'm buying my first multi property and will be house hacking at the same time.

Rent for a 2-3 bedroom 1bath can go from 800-900 which is incredibly less than the 1% rule for a purchase price of 150k so is it the 1% rule for multi property house for the total of the property or for each unit. All help is appreciated and will be hopefully closing on a 2-3 family house within the next two months hopefully 

@Edward Dones - It is the total income from all apartments, laundry etc.

$900. X3 units is $2700. Per mo.

1% would be purchase price of $270k. I'm not far from you and I can hit those monthly numbers for $200k and below all day and much better for rehab project. Good luck 

@Eric Munson thank you I will be buying in the Springfield MA area and now I actually feel more confident on buying the house plus I will be house hacking so it for a two family I won't have a cash flow but will be actually paying under 400 for expenses (utilities and rest of mortgage) Hoping 

To find a good triplex and how do you feel about renting rooms to college kids. I have 3 colleges around the area I'm buying and I know I can make 450-500 per room a months, I do this now with my parents second floor (3rms 450 each =1350) and it works for them and they get a cash flow as well

@Edward Dones - House hacking is a great way to go in my opinion. Two unit is a good way to start and you will only be managing 1 tenant. However, a 3 unit in our area in a sold c+ area can allow you to live rent free. There are pros and cons to each.

I don't rent to students because it's more work and turnover etc but you can cash flow better. Again pros and cons. Every investor has a different situation and strategy to match. I look for easy steady cash flow by having nice apartments in good areas with great tenants. That has worked well for me.

@Edward Dones

Take a good look at the landlord tenant rights and responsibilities of Massachusetts including the Security Deposit Law.

http://www.mass.gov/ocabr/consumer-rights-and-resources/housing/tenant-and-landlord/tenant-rights.html

There may be more of a potential of more wear and tear since they are college students, but you may not. Just let them know the ground rules and get a mutual respect from each other (and their security deposit just in case) you should be fine. Triplexes are really good income streams. 

@Brian Novak thank you will be looking into this as well and if I can find a good triplex will definitely go for it thanks for the info

@Eric Munson thank you for the info definitely will. E taking a lot of this in consideration and I'm hoping to get something that is a easy fix since I have experience in construction fixing up flip house for others and working with family members over the years on in-home projects 

@Eric Munson  thank you for the info definitely will be taking a lot of this in consideration and I'm hoping to get something that is a easy fix since I have experience in construction fixing up flip house for others and working with family members over the years on in-home projects

@Edward Dones welcome to BP, i invest in the Springfield area. Bought my first duplex 11 years ago when the market was about to explode, :/ i over paid for it, but Ive kept this specific property in good shape and do the necessary updates, today is cashflowing beautifully :). Keep in mind you have a crapy rental you will get crapy tenants. Feel free to ask any questions, good luck

@Indra H. just curious what would you buy houses In the Springfield area I just seen a a triplex for 169k in turn key shape and another one that needs work that is 159k (way to high) looking to offer 110k

It depends, Springfield is such a diverse town, it all depends on your criteria. 159k can be high or just right. I usually think of the area, the type of tenants i most likely would get (not garanteed), the rents i could collect. It also depents on your RE strategy. I do mostly for passive income.

@Edward Dones It sounds like you will definitely be able to hit the 1% rule out there. If you go house hacking though, be comfortable with breaking even. Living for free is pretty awesome in itself and is a great starting point.

Does anyone have a referral for an investor friendly (investor themselves) agent/broker? For the Western MA area?

Not all areas will let you follow the 1% rule because home prices are so much higher, no one would pay that much. But I like what @Eric Munson said, he explained the 1% rule clearly and he is right about renting to students. If you rented individual rooms, you could be making a lot more. 

Good luck.

@Jorge Campos - the 1% rule in real estate says that you should be making 1% of the purchase price every month through rent. So for example, if you bought a property for $100k, then you should be at least getting $1k in rent every month (which is 1% of $100k). It's a good rule to follow, some people say it should be 2%. But this doesn't apply to all properties or areas - especially in more expensive areas. 

The 2% rule doesn't really work in my market.  In Connecticut the houses here are pretty expensive especially in the Fairfield County area because its only 40 minutes away from NYC.  I'm aiming for a 1% or better in my market if I can get it. 

@David Noskiewicz I am an investor/agent in western mass. Feel free to message me with any questions

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