How does the 1% rule of thumb work?

Question

I understand for the most part how it work when using the example for $100,000 house.

Does anything in the month change if the house is worth

$176k to $194?

Rent is $1350

Account Closed · Answer

@Brandon Roof the numbers are kind based off of my house. Are loan was 131k, its down to around 120k, and is now worth between 176k and 194k per zillow.

Some remodleing needs to be done.

The 1% rule wasnt working for the house if i refinanced and rent for $1350.

Anthony Wick · Answer

@Alex Dayes

Run the real numbers. Rent, less all expenses, less reserves for vacancy, capex, maintenance, Mgmt costs. I use the 1% rule as a determining factor on if I should start doing my real calculations. It’s possible that your home simply won’t generate cash flow at market rents.

Brandon Roof · Answer

1% of $176k and 194k would be $1,760 and $1,940/month in rent, respectively, well above your $1,350, meaning the 1% rule isn't even close in this case.  I wouldn't go by the 1% rule anyway because it rarely leads to the outcome an investor is looking for.  It may have at one point, and may still in certain markets, though if you spend a little more time in the forums, those opportunities seem to be few and far between or are in questionable neighborhoods, usually not on $150k to $200k houses.

Account Closed · Answer

@Anthony Wick i get that much. But if i were to rent my place at $1350 a month all utilites covered by tenant, i was getting way under the 1%. Like .7 something. Especially if i refinanced.

The 1% did work if i would rent now for $1350 at my current loan of 131k, but when you then do the 50% rule of thumb, it doesnt work.

Current Morgage $880. $1350/2 = $675 morgage for cahs flow

Account Closed · Answer

@Brandon Roof understood! Thank you replying!

Anthony Wick · Answer

@Alex Dayes

All about rents to purchase price (or refinance price). And if it’s a rental, you have to think about utilities as well. If landlord is paying water, gas, etc, 1% will not be enough to have cash flow.

How does the 1% rule of thumb work?

Most Popular Reply