Best cities to find 1% (or more) rule

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Best cities to find 1% (or more) rule

Blair Colsey
New to Real Estate · Broomfield, CO · Member since 2017 · 24 posts · 13 votes

Hi All,

I'm currently listening to @David Greene's book Long Distance Real Estate Investing on Audible (which is a great way to learn I might add) and I'm getting excited about buying some properties out of state. I currently live outside of Denver and I'm finding that although the increase in housing prices has been great for building equity on the properties I already own, its not so great for finding deals that meet the 1% rule requirement. I realize that the 1% rule isn't a "hard and fast" rule that needs to be met on all acquisitions but the point is, the market I'm in is not longer as hospitable to finding deals as it once was so I'm looking to expand into other markets. 

My question is this: What are the other markets where we're seeing the 1% rule being more attainable? Are there any resources anyone can recommend that help guide an investor through detailed market analysis?  I'd love to get to a point where I have 5-10 socioeconomic factors that I can easily calculate to identify market opportunities. 

Thanks in advance for your thoughts!!

Blair

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y
Originally posted by @Blair Colsey:

@Russell Brazil how so? We always talk about the 1% rule or even the elusive 2% as the benchmark in buy and hold investing. 

 Yield in any asset class is a measure of the markets view of the risk in the asset. The higher the yield, the higher the risk. With the higher the risk, comes the higher probability of actual returns deviating from pro forma returns.  This is a fundamental fact in any investment class...real estate, dividends, bonds etc.

The lower risk assets/markets (DC, Boston, Seattle) in real eatate actually typically have the higher return than the lower risk market (Baltimore, KC, Indianapolis).

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  • Ozzy SirimsiBusiness Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
    7y
    Originally posted by @Account Closed:

    @Ozzy Sirimsi  could you be more specific, like what areas of Baltimore do you recommend looking at? (I'm in DC ...) 

     If your goal is to reach %1, it is pretty much everywhere. If you tell me what you are looking for, then I can be more specific.

    0Reply
  • Abad MarroquinPro Member
    Chatsworth, GA · Member since 2014 · 125 posts · 17 votes
    7y

    I am in North Georgia an South east TN and I am easily finding multifamily deals that meet the 1% or rule or higher. Right now I am seeing a 7 plex. Each unit is 2/1 and each rent for $600/mo. Asking price is $325k. If you divide rent $4200 by purchase price $325,000 you get 1.3%. Cash on Cash 13%. Purchase cap rate 9.85%. Appreciation here is not as high as other areas that's why it is easier to find deals like this. 

    1Reply
  • Blair Colsey
    OP
    New to Real Estate · Broomfield, CO · Member since 2017 · 24 posts · 13 votes
    7y

    Thanks to everyone for your responses. For anyone who is interested, here is a consolidated list of 1% markets that have been suggested.

    • Baltimore
    • KC
    • Indy
    • Warner Robins, NC
    • Detroit 
    • Memphis
    • Cleveland
    • Milwaukee 
    • Hartford, CT
    • Springfield, MA
    • Jacksonville, FL
    • Birmingham
    • Atlanta
    • Little Rock
    • Fayetteville, NC
    • Nashville
    3Reply
  • Shawn Foster
    Investor/Wholesaler/RE Agent · Kansas City, MO · Member since 2015 · 69 posts · 8 votes
    7y

    @Blair Colsey We can get 1% all day long here in KC. Lets connect!

    1Reply
  • Dave Gilbert
    Rental Property Investor · Bountiful, UT · Member since 2017 · 3 posts · 10 votes
    7y

    @Blair Colsey this might help https://www.biggerpockets.com/forums/311/topics/66...

    1Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 295 posts · 150 votes
    7y
    Originally posted by @Abad Marroquin:

    I am in North Georgia an South east TN and I am easily finding multifamily deals that meet the 1% or rule or higher. Right now I am seeing a 7 plex. Each unit is 2/1 and each rent for $600/mo. Asking price is $325k. If you divide rent $4200 by purchase price $325,000 you get 1.3%. Cash on Cash 13%. Purchase cap rate 9.85%. Appreciation here is not as high as other areas that's why it is easier to find deals like this. 

     What city is this and how is the area?

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 295 posts · 150 votes
    7y
    Originally posted by @Kramer Stewart:

    I have a Turn Key property here in Little Rock I'm selling for better than the 1% rule. 

    Nice is it SF or multi?  What grade area?

    0Reply
  • Kramer Stewart
    Investor · Fayetteville, AR · Member since 2016 · 53 posts · 14 votes
    7y

    @Clarence Johnson It is SF and in a C area. It is 3 bed 1 bath in SW Little Rock Currently rented for $875/month but lease ends in February. I am raising it to $925/month and have people wanting to submit applications to move in immediately after the current tenant moves out. I also have another that we are almost done renovating. 4 bed 2.1 bath Right next to Hindman Park/golf course. PM me if you want more info

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Blair Colsey The firs thing I recommend is to ignore the 1% rule. It can cause you to ignore good markets while spinning your wheels researching others. The 1% rule has nothing to do with your overall cash flow and ROI. That's because operating costs can vary widely across markets effecting your bottom line, particularly property taxes and insurance rates. As an example, you might be able to get a 1% rent ratio in Dallas but they have some of the highest property taxes and insurance rates in the nation. My suggestion is to start evaluating markets on the basis of their economic and demographic trends such as population, jobs and incomes. Once you have a short list, research the taxes and insurance rates. That will give you a fuller picture than just a rent ratio. The chart below shows how how taxes and insurance can vary significantly by market.

    3Reply
  • Ryan Clements
    TX · Member since 2018 · 16 posts · 5 votes
    7y

    @Mike D'Arrigo that is a terrific graphic and thanks for sharing! What is your source on that?

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y
    Originally posted by @Ryan Clements:

    @Mike D'Arrigo that is a terrific graphic and thanks for sharing! What is your source on that?

     Insurance.com and Taxfoundation.org

    1Reply
  • Ryan Greenberg
    Investor · Baltimore, MD · Member since 2016 · 16 posts · 12 votes
    7y

    I am an investor in Baltimore MD and all of my rentals hit the 1.5% rule and some all the way up to 2%. If anyone has any questions about our market feel free to reach out! 

    0Reply
  • Paul Nevin
    Hood River, OR · Member since 2016 · 5 posts · 0 votes
    7y

    What is the 1% rule?  I heard the cap rate needs to be 10%

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y

    OKC and surrounding areas all the way. 

    0Reply
  • Blair Colsey
    OP
    New to Real Estate · Broomfield, CO · Member since 2017 · 24 posts · 13 votes
    7y

    @Kiera Underwood where in OKC? I have family in the area so I had done a little research but the rents looked too low. 

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y
    Originally posted by @Blair Colsey:

    @Kiera Underwood where in OKC? I have family in the area so I had done a little research but the rents looked too low. 

    Midwest City and Del City. Are you comfortable with C class?

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    7y
    Originally posted by @Paul Nevin:

    What is the 1% rule?  I heard the cap rate needs to be 10%

    "1% Rule" = (Minimum) 1% of purchase price returned as gross rent per month.

    "Cap Rate" is used for commercial buildings only (and "needs to be" whatever % the Investor sets)!

    eg. An Investor may have good reason to only require say a 5% cap (or even less) in certain locations.

    [Look up: "The Three Golden Rules in Real Estate Investment"]...

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