Is the 1% or even 2% Rule Applicable in Australia

11 Replies

Hi 

I have recently started looking at investing in property in Australia and within NSW more specifically. The 1% rule where the total monthly rent is equal to 1% of the property purchase value has come up frequently as a useful way to quickly analyse if a property is a sensible investment that may cash flow. As I have been looking into buying my first investment property I have found many properties that satisfy the 50% rule where 50% of the total rent income is used to cover all costs excluding the mortgage and what's left is potentially positive cash flow. However I have not come across a single property to satisfy the 1% rule or even come close to 2%.

It may be that I just need to look deeper into the real estate market in New South Wales, or look elsewhere in Australia or maybe this figure of 1% is unrealistic in Australia and not so relevant?

This is my first post here so apologies if it is inappropriate.

Br, Finn

Originally posted by @Federico Gutierrez :

Most properties are negatively geared in Australia. Cash flow in Australia is slim to none especially in capital cities like Sydney, Melbourne and Brisbane.

I love that term negatively geared..  have to remember to use it on BP to further confuse the US investor.. along with warning them about Spruikers  :)  Engelo Rumora  bought the cheapest home in AU so he says

Originally posted by @Jay Hinrichs :
Originally posted by @Federico Gutierrez:

Most properties are negatively geared in Australia. Cash flow in Australia is slim to none especially in capital cities like Sydney, Melbourne and Brisbane.

I love that term negatively geared..  have to remember to use it on BP to further confuse the US investor.. along with warning them about Spruikers  :)  Engelo Rumora  bought the cheapest home in AU so he says

I sure did mate - https://homes.nine.com.au/decor/i-doubled-my-money-on-australias-cheapest-house/6c8e2171-5d32-4639-8024-b1e556f82e56

haha 

Originally posted by @Finn Irving-Dent :

Hi 

I have recently started looking at investing in property in Australia and within NSW more specifically. The 1% rule where the total monthly rent is equal to 1% of the property purchase value has come up frequently as a useful way to quickly analyse if a property is a sensible investment that may cash flow. As I have been looking into buying my first investment property I have found many properties that satisfy the 50% rule where 50% of the total rent income is used to cover all costs excluding the mortgage and what's left is potentially positive cash flow. However I have not come across a single property to satisfy the 1% rule or even come close to 2%.

It may be that I just need to look deeper into the real estate market in New South Wales, or look elsewhere in Australia or maybe this figure of 1% is unrealistic in Australia and not so relevant?

This is my first post here so apologies if it is inappropriate.

Br, Finn

Aussie market is down like never before.

20% in some regions.

It's still expensive and unfortunately Liberal one the election so they will probably pump the market back up.

I was hoping to snag a waterfront bargain for 40% off so I can move back home lol :)

Thanks 

Originally posted by @Engelo Rumora :
Originally posted by @Finn Irving-Dent:

Hi 

I have recently started looking at investing in property in Australia and within NSW more specifically. The 1% rule where the total monthly rent is equal to 1% of the property purchase value has come up frequently as a useful way to quickly analyse if a property is a sensible investment that may cash flow. As I have been looking into buying my first investment property I have found many properties that satisfy the 50% rule where 50% of the total rent income is used to cover all costs excluding the mortgage and what's left is potentially positive cash flow. However I have not come across a single property to satisfy the 1% rule or even come close to 2%.

It may be that I just need to look deeper into the real estate market in New South Wales, or look elsewhere in Australia or maybe this figure of 1% is unrealistic in Australia and not so relevant?

This is my first post here so apologies if it is inappropriate.

Br, Finn

Aussie market is down like never before.

20% in some regions.

It's still expensive and unfortunately Liberal one the election so they will probably pump the market back up.

I was hoping to snag a waterfront bargain for 40% off so I can move back home lol :)

Thanks 

are you saying Toledo and most of Ohio is not as cool as living on the gold coast..  :)  

@Finn Irving-Dent keep in mind that, even if a property meets the 1% rule, that doesn't necessarily mean that it cash flows.

What you need to do, is analyze properties that cashflow, and see what their ratio is. What you may find is that it takes 1.5% rent to purchase to cashflow, or .75%. Once you know what your magic number is, you can use the "whatever %" rule to quickly evaluate properties.

Originally posted by @Jason D. :

@Finn Irving-Dent keep in mind that, even if a property meets the 1% rule, that doesn't necessarily mean that it cash flows.

What you need to do, is analyze properties that cashflow, and see what their ratio is. What you may find is that it takes 1.5% rent to purchase to cashflow, or .75%. Once you know what your magic number is, you can use the "whatever %" rule to quickly evaluate properties.

 in the nicer parts of AU  properties are 700 to 2 million. and rent for a few grand a month.. you need at least 50% down to cash flow.

AU investors use gross income not net like we do..  and since appreciation has been the name of the game there for 2 decades  negative cash flow was just fine to them..  or Negative Gear as is the nomenclature in that country. 

@Jay Hinrichs that's understandable. My point is that you need to find your number. 1% is a useless tool if you cant use it, so adapt the tool to meet your goals. My Florida evaluation is, coincidentally, 1%, but my NJ number is 1.3%, because the fixed expenses are much higher.

Originally posted by @Jason D. :

@Jay Hinrichs that's understandable. My point is that you need to find your number. 1% is a useless tool if you cant use it, so adapt the tool to meet your goals. My Florida evaluation is, coincidentally, 1%, but my NJ number is 1.3%, because the fixed expenses are much higher.

 Gotcha our rules don't play down under  :)   

Originally posted by @Jay Hinrichs :
Originally posted by @Engelo Rumora:
Originally posted by @Finn Irving-Dent:

Hi 

I have recently started looking at investing in property in Australia and within NSW more specifically. The 1% rule where the total monthly rent is equal to 1% of the property purchase value has come up frequently as a useful way to quickly analyse if a property is a sensible investment that may cash flow. As I have been looking into buying my first investment property I have found many properties that satisfy the 50% rule where 50% of the total rent income is used to cover all costs excluding the mortgage and what's left is potentially positive cash flow. However I have not come across a single property to satisfy the 1% rule or even come close to 2%.

It may be that I just need to look deeper into the real estate market in New South Wales, or look elsewhere in Australia or maybe this figure of 1% is unrealistic in Australia and not so relevant?

This is my first post here so apologies if it is inappropriate.

Br, Finn

Aussie market is down like never before.

20% in some regions.

It's still expensive and unfortunately Liberal one the election so they will probably pump the market back up.

I was hoping to snag a waterfront bargain for 40% off so I can move back home lol :)

Thanks 

are you saying Toledo and most of Ohio is not as cool as living on the gold coast..  :)  

Not even close mate haha

@Finn Irving-Dent

Im American but have spent decent amount of time in NSW, Bondi to be more specific as thats where my partner owns a place and lives. It baffles me the going rates for places yet how little rent they garner. Theres no way anyone is cash flowing in that area that has bought at the height of the market, or likely even now. Its insane really.

Im trying to figure out next how we can leverage her equity into somwthing else in Oz or if its possible to take it to US somehow.

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