Is the 1% rule dead?

Rental Property Investor · Atlanta, GA · Member since 2016 · 60 posts · 53 votes

Hi All,

I was wondering are you still using the 1% rule when doing quick and dirty new deal analysis? Is anyone out there still able to achieve the 1% rule and in which markets?

Recently I noticed I get to 0.7 or 0.8% at best (i.e. 100k purchase price, $700-800 rent per month).

Excited to learn from you all!

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

The 1% rule is essentially not going to happen in most markets, unless you are in the midwest or more rural/LCOL areas.

I tend to think about it a little differently. I look for locations that I am comfortable with, and look for the best rental yield I can get in that location. This is how I begin my search. However, the highest yielding property is often not the property that I actually want to buy. It just helps me sort out all the stuff that definitely won't work.

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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Eric Hughes:

It really depends on your market and neighborhood. In cash flow markets (like these), you can definitely still get the 1% rule pretty easily in C-neighborhoods (where SF homes will be $80-$130K). When prices go up as you move into better neighborhoods and/or more expensive markets, it will get tougher to exceed 1%.
As others have mentioned, this is a good rule of thumb, but you have to run a full set of numbers to understand you potential ROI on a deal. Personally, I focus most on CoC, which of course is dependent on your interest rate if you're using a mortgage.
Just as an example, though: in Memphis where I invest, with a 1% property (i.e. buy for $110K, rent for $1100), CoC would typically come in between 6-10% today.

I would never purchase with 1% rule. I want 15-20% NET ( based on cash purchase) or I move on
0 Reply
Dean HarrisBusiness Member
Real Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votes
2y
1% Rule is alive in Memphis, TN
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Zane Cress
Realtor · Athens, GA · Member since 2023 · 201 posts · 104 votes
2y
Anywhere decent in GA is .7-.8. Anything worthwhile in Athens is the same. Can find stuff down in Macon that is 1% but you will spend sooooooo much money on repairs and chasing rent it won't be worth it. Buy good properties in good neighborhoods and after 3-5 years of rent growth you will hit 1%.
2 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
I just seen an investor pay 105k, with 1700 in rent, sec 8
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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
2y
It can still be done, especially here in KC :)
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
2y
It's alive in lower appreciating areas. I have 10 SFR in areas like that. But my other 19 SFR are in higher appreciating areas that are currently getting just the .8% rule at first when I buy. I'm ok waiting a few years for market rent to ramp up because I know the appreciation will be there in 5-10 years and they'll do much better in the long run vs cheaper lower appreciating areas that I'm getting the 1 or 2% rule when I first buy.
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Cortney Huber
Member since 2024 · 7 posts · 2 votes
2y
Quote from @Stuart Udis:
The 1% rule incredibly flawed, even as a short form underwriting technique. I observe investors dismissing so many properties that fail to meet this arbitrary standard but perform far better than properties that pencil as "1" properties" on an excel spreadsheet. Here's my primary reasons:

Expenses disproportionately impact lower rent collecting properties For illustration purposes compare two identically designed 1+1 duplexes in the same market. The “A” located duplex has one bedroom units that rent for $2,000/m and the “C” located duplex in the same market has units that rent for $1,200/m. Now assume each unit is occupied by 1 person. Common utilities paid by the landlord will be similar if not the same; standard services (extermination, changing filters, snow removal, fire safety inspections etc.) will cost the same. Book keeping/tax prep costs the same.
Expenses will vary depending on the market The cost of doing business varies from municipality to municipality. A $200,000 duplex might have identical rents in municipality “A” and municipality “B” but the property tax rates will vary, local regulations will dictate licensing requirements, labor rates will vary & the particular location will dictate insurance premiums since insurance carriers will weigh local replacement costs and whether the municipality is viewed as being a “plaintiff friendly” in arriving at insurance premiums.
Better situated assets will attract better tenants/higher rents & reduced management expenses Tenants who reside in better situated housing and pay higher rents are more financially responsible meaning lower rate of rent loss and will generally take better care of the property. Expect to allocate less time towards management functions if self-performed or more favorable management fee structures if 3rd party management companies are utilized (which ties back to #1, as well).
This is a great response. I also look at potential for value add when screening a property--would the size accommodate the addition of more bedrooms or units? Are current rents significantly below market? Is it possible to add an external ADU on the property? Among other factors, those are some easy value adds that would get missed by simply applying the 1% rule.
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Christopher Robert Noland
Investor · Seattle, WA · Member since 2023 · 87 posts · 44 votes
2y
It depends on where and what deal.
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Nina V.Pro Member
Investor · Member since 2023 · 39 posts · 18 votes
1y
I got 4 SFHs this year in 3 states that meet or slightly exceed the 1% rule because I took on a problem the sellers did not want to deal with (clean up hoarder house, tenant eviction, etc). They are out there but takes work to find them and to have connections that bring you these off market deals as these types of properties are not listing on MLS.
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
1y
Quote from @Zane Cress:

Anywhere decent in GA is .7-.8. Anything worthwhile in Athens is the same. Can find stuff down in Macon that is 1% but you will spend sooooooo much money on repairs and chasing rent it won't be worth it. Buy good properties in good neighborhoods and after 3-5 years of rent growth you will hit 1%
I get as many as I want with 2% rule fully renovated properly,
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Gregory SchwartzBusiness Member
Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Investing isn’t just about hitting the 1% or even the elusive 2% rule. Real returns come from understanding that a strong, appreciating market can outpace even the best cash-flowing deals. Appreciation often outperforms cash flow over a longer timeline. Play 'The Infinite Game' :)
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Kevin Lee
Member since 2024 · 3 posts · 0 votes
1y
Quote from @John Morgan:

You can still get the 1% rule in some areas but appreciation is weak most likely. I’ve bought 10 houses in a ghetto city in Arkansas that gets the 2% rule. I’m not expecting any appreciation but the cash flow is good. I’ve got 19 houses in a better appreciating area (Dallas), but I’m only hitting the .7% rule here. Appreciation is good in TX but I’m breaking even the first couple years when I buy here. Fortunately market rent is coming way up each year so that helps.

Hi John, Just bought my first property (duplex) in Little Rock. What ghetto city/zip code in AR did you find 2% rule? Thanks.
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Taz Zettergren
Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes
1y
@Saad D. The 1% rule is still obtainable in several markets here in the southern/middle part of the country. It'll likely put you in more challenged areas so there's higher probability for headaches but those properties that do work out, tend to do very well.
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