Does the 1% rule apply to all prices of homes?

1 Reply

My wife and I are in little bit of a tight spot. The guy that purchased the empty lot next to us has made an offer on our house. It's a long story, but trust me, it's most advantageous to negotiate and sell. We have to be moved by March 1st, so the proverbial clock is ticking. Because our "dream home" doesn't seem to be on the market right now, I'm looking for a rental/flip candidate. In our area about the highest you'll see a rental is about $1,500, so according to the 1% rule, that will cap me at $150k house. A lot of what I'm seeing is $160-$170k, which is beyond the high end of rent in our area. 

Is there a deviation from the 1% as the price of the homes go up? The only reason I ask is because if the goal is cash flow, and the property doesn't meet the 1%, but still has cash flow....what's the big deal? For example, if my mortgage is $1,150 and I can get $1,500 in rent....isn't that the goal?

Or, is it a matter of the 1% rule mostly works because rental homes are being purchased under market value(certainly helps)? I know we all strive for great deals, and certainly don't want to over pay, but the clock is ticking.  I'm not trying to justify paying retail, but if the numbers work...what am I missing?

I look forward to hearing your thoughts, and thank you in advance! 

p.s. Any wholesalers in the Louisville/Maryville, TN area? lol

So, this is my first post on BP (and with no deals under my name) so I'm no expert. 

1% is just a rule of thumb to gauge how good an investment is. Something that you shoud consider with a rental property are the expenses you'll have month to month. Sure, you can get 1500 to cover the 1150 mortgage.. but what about the repairs, capEx, management,  vacancies etc which could quickly turn that property into a money sink.

Maybe shoot for ~90k homes in these areas that you could live in/rehab over time to get you to 150k ARV? That way you could potentially hit 1.5ish% if all works out well. One thing I will caution is not jumping into something because you feel rushed. Make sure the numbers work before your stuck with something you may be unhappy about.

Just my 2 cents  though, wish you luck finding a killer deal!

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