Is there a 1% Rule market out there?

Buying & Selling Real Estate
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Is there a 1% Rule market out there?

Seth M. Jones
Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes

I'm currently sitting on 6 buy and hold investments, and looking to acquire more, but began looking outside of my area due to very few cashflowing opportunities in my market. I've even relaxed my criteria in order to find deals, but nothing seems to meet my minimum requirements locally. I'm open to investing anywhere Stateside, and am curious if any buy and hold investors would recommend any particular market? Why? 

I'm generally looking for a growing market that has properties that can at least come close to the 1% rule. What markets should I be looking into? 

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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
7y

@Seth M. Jones we have some in Minneapolis, just sold one last week. I’ve bought some in Louisville and Austin last year. Just be patient and make offers based on numbers. If finding great cash flow was easy real estate investing wouldn’t be so much fun.

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  • Dustin Beam
    Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    7y

    Yes, you can find them here in KC. However, if cashflow is your goal at all, I don't personally believe the "1% rule" ever works. At least I've never analyzed a deal that works for cashflow once CAP-X, vacancy, maintenance, etc are all considered.

    3Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    7y

    Rent/Cost ratios are good for comparing properties within the same neighborhood or similar ones, but I wouldn't think of "Rule" with any rent/cost ratio because it just doesn't match cash flow that closely. But the best markets for cash flow are going to be in the Midwest and Southeast for sure.

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    1Reply
  • Brandon Miller
    Specialist · San Antonio, TX · Member since 2018 · 155 posts · 76 votes
    7y

    Thank you @Lexi Teifke for the referral!

    @Seth M. Jones

    I will shoot you a DM with contact info and to discuss further!

    1Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y
    Originally posted by @Dustin Beam:

    Yes, you can find them here in KC. However, if cashflow is your goal at all, I don't personally believe the "1% rule" ever works. At least I've never analyzed a deal that works for cashflow once CAP-X, vacancy, maintenance, etc are all considered.

     I completely agree with you, and I fully analyze all of my deals. I only mentioned that as a place to start, as it generally is a good indicator of price to rent ratios

    1Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y
    Originally posted by @Andrew Syrios:

    Rent/Cost ratios are good for comparing properties within the same neighborhood or similar ones, but I wouldn't think of "Rule" with any rent/cost ratio because it just doesn't match cash flow that closely. But the best markets for cash flow are going to be in the Midwest and Southeast for sure.

     Any specific city that you'd recommend in particular?

    0Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y
    Originally posted by @Lexi Teifke:

    Yes in San Antonio or Killeen Texas. @Brandon Miller Can help out in San Antonio. 

     Thank you Lexi!

    1Reply
  • Cassi Justiz
    Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    OKC is a solid 1% rule market as long as you stick to the B-C areas. You can obviously get higher returns in the D markets. Generally in our C market areas (under 100k purchase price) turn-key, retail MLS listings will already be close to 1% rule. With a little effort and the ability to make a quick offer, it isn't hard to pick up 1% rule houses on the MLS.

    3Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    7y

    Hey @Seth M. Jones I dont think you need to look outside of your area. I think you may need to do some marketing to find the people who NEED to sell instead of the people who WANT to sell their house. Big Difference.

    When you find the people who NEED to get out, they will sell so that you can buy and achieve the 1% or even better. It takes lots of marketing, networking and talking to lots of people to get good deals right now.

    2Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y
    Originally posted by @Rick Pozos:

    Hey @Seth M. Jones I dont think you need to look outside of your area. I think you may need to do some marketing to find the people who NEED to sell instead of the people who WANT to sell their house. Big Difference.

    When you find the people who NEED to get out, they will sell so that you can buy and achieve the 1% or even better. It takes lots of marketing, networking and talking to lots of people to get good deals right now.

    Great points, but I'm looking outside of the area regardless in order to diversify my real estate portfolio across a few different markets. My area is susceptible to hurricanes and is influenced by tourism, and I'd like to get into a few different markets over the next few years. 

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    7y
    Originally posted by @Seth M. Jones:
    Originally posted by @Andrew Syrios:

    Rent/Cost ratios are good for comparing properties within the same neighborhood or similar ones, but I wouldn't think of "Rule" with any rent/cost ratio because it just doesn't match cash flow that closely. But the best markets for cash flow are going to be in the Midwest and Southeast for sure.

     Any specific city that you'd recommend in particular?

    We're in Kansas City, which is a good market. Indianapolis, Tulsa, Oklahoma City and even St. Louis to a degree are good. I've heard good things about Raleigh and Louisville, but I don't know the south as well.

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    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    @Seth M. Jones we have some in Minneapolis, just sold one last week. I’ve bought some in Louisville and Austin last year. Just be patient and make offers based on numbers. If finding great cash flow was easy real estate investing wouldn’t be so much fun.

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
    WebsiteView Page
    5Reply
  • Raphael Collazo
    Real Estate Agent · Louisville, KY · Member since 2016 · 183 posts · 188 votes
    7y

    There are opportunities for cash flowing properties here in Louisville. In fact, the property I purchased this past November met the 1% rule. Although the market has been heating up in recent years, there are still opportunities to be had in the city. 

    2Reply
  • Fredie Robinson
    Investor · Shepherdsville, KY · Member since 2016 · 87 posts · 48 votes
    7y

    I have a 2% house for sale in Louisville right now. 

    2Reply
  • Rob Bergeron
    Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    Definitely doable! 

    0Reply
  • Sean ORoruke
    Member since 2018 · 5 posts · 2 votes
    7y

    @Seth M. Jones Tupelo ms is doing very well. Low house prices and good rent rates. Let me know if I can help

    1Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y

    Thank you for all the follow-up. After some great feedback and additional research, I'm currently targeting a few areas in Texas. 

    0Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    7y

    @Seth M. Jones

    Oklahoma is where it's at. 

    1% rent to value, solid C class suburban neighborhoods. PRICE POINTS AT 60K. 

    I could go on all day. PM I'll send you some stuff!

    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Seth M. Jones why not establish a criteria for CoC return or some other meaningful metric? Rent ratios don't say anything about ROI and are especially meaningless misleading when comparing across markets. That's because they don't take any expenses in to account which can vary drastically across markets. For instance, a market like Dallas which has some of the highest property taxes and insurance in the country will have nowhere near the returns that markets in AL which have very low taxes even with the same rent ratio. Rent ratio might be somewhat helpful when you are comparing opportunities within the same market but are useless and can be very misleading when comparing markets with different operating costs. Now if you asked if there were markets with 12-14% CoC returns, I would say yes. Most of the Midwest and some of the Southeast have those kind of returns. I personally like Indianapolis and Kansas CIty. I'd be happy to talk to you in more detail if either of those two are on your radar, which if cash flow is your objective, they should be.

    3Reply
  • Seth M. Jones
    OP
    Rental Property Investor · Port Orange, FL · Member since 2018 · 78 posts · 43 votes
    7y
    Originally posted by @Mike D'Arrigo:

    @Seth M. Jones why not establish a criteria for CoC return or some other meaningful metric? Rent ratios don't say anything about ROI and are especially meaningless misleading when comparing across markets. That's because they don't take any expenses in to account which can vary drastically across markets. For instance, a market like Dallas which has some of the highest property taxes and insurance in the country will have nowhere near the returns that markets in AL which have very low taxes even with the same rent ratio. Rent ratio might be somewhat helpful when you are comparing opportunities within the same market but are useless and can be very misleading when comparing markets with different operating costs. Now if you asked if there were markets with 12-14% CoC returns, I would say yes. Most of the Midwest and some of the Southeast have those kind of returns. I personally like Indianapolis and Kansas CIty. I'd be happy to talk to you in more detail if either of those two are on your radar, which if cash flow is your objective, they should be.

    I appreciate your perspective, and I absolutely do have requirements for CoC returns. The reason I opened up the conversation about rent ratios is that even beginning investors understand them, and I only had one goal... to get feedback from investors on markets that I should be looking into. Once I am exposed to the market, then the due diligence of analyzing potential ROI comes into play.

    Thank you for recommending that I check out Indianapolis and Kansas City. I'll explore those areas further. I would be interested in connecting about Indianapolis, as I've already looked into that market and I'm trying to decipher which areas have B and C class properties... evaluating these areas from a distance it is often hard to tell whether you're looking at a C property or a D class property (which I've invested in previously and now know to avoid). 

    Thank you for joining the conversation. 

    0Reply
  • Ross Denman
    Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes
    7y

    @Seth M. Jones We see 1% in Indianapolis, but i prefer my clients to be in specific areas that have better tenant demographics, higher tenant retention, and predictable appreciation. We are starting the Spring off pretty strong and it's tough right now to meet the 1% rule when you're competing with the retail market. With that being said, I've had 4 clients close MLS deals in the last week and 2 more with offers that should close in the next couple.

    I'm expecting most of my clients to start having more trouble finding those properties until Sept/Oct when the sellers are going to be more open to negotiations. Currently, most homes are selling around 96% of list price. I was set to get video on a property yesterday about 6 hours after it hit the market and the listing agent already had multiple offers on it. The best deals are going very fast right now so you have to have a fast and efficient team to capture the real deals which are getting fewer by the week right now.

    I have several clients in KC as well, but I don't have any personal experience in that market and I've seen more talk about Oklahoma recently as well.

    My personal opinion is that the team is just as important (possibly more important) than the market. Find good markets and build a great team and you will do better than finding the "best" market with a mediocre team. Best of Luck!

    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Seth M. Jones that's where the real limitations of analyzing rent ratios really comes in to play---comparing markets. You risk not getting exposed to good markets whose rent ratios might not look as good as other markets that won't cash flow as well. As I was saying, the operating costs can vary significantly across markets and rent ratios will give a distorted picture. You could rule out a market that might have better cash flow but a lower rent ratio in favor of one with a higher rent ratio but lower cash flow. As an example, you can find 1% ratio's in Dallas and other parts of TX, but but because their property taxes and insurance rates are so high, they won't cash flow as well as another market that might have lower rent ratios. 

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

    I agree with @Ross Denman the team is everything. I don't focus on it much on BP but should. It's hard not to without fear of being removed for self-promotion. However, whatever rates of turn you receive won't matter if you don't have people on the ground you trust. Also, so much of what I talk about are off-market deals. Investors not working with my team would have a harder time finding, securing and closing these deals. 

    1Reply
  • Ron Harris
    Investor · Oklahoma City, OK · Member since 2010 · 279 posts · 90 votes
    7y
    I agree with Cassi.
    Blue Collar neighboorhoods will rent 1-1.5%.  War zones 2% but a whole new set of issues.
    I LOVE blue collar neighboorhoods for rentals. 

    Originally posted by @Cassi Justiz:

    OKC is a solid 1% rule market as long as you stick to the B-C areas. You can obviously get higher returns in the D markets. Generally in our C market areas (under 100k purchase price) turn-key, retail MLS listings will already be close to 1% rule. With a little effort and the ability to make a quick offer, it isn't hard to pick up 1% rule houses on the MLS.

    1Reply
  • Dessa Patton
    Fulton MS · Member since 2022 · 7 posts · 0 votes
    4y

    @Sean ORoruke, Are you local to Tupelo? I'm in the learning phase and looking for local groups of investors. Are there meetings?

    0Reply
  • Account Closed
    Member since 2021 · 217 posts · 190 votes
    4y

    Yep, check your local Ghetto. Thank god for 10 years of easy money policy. 

    Thing about 1%, btw- it used to be called the 2% rule. 2% was the crude thumb rule for cashflow. Even that wasn't a guarantee, because it obviously doesn't even take the condition of the building into consideration. 

    It somehow, optimistically, turned into a 1% rule here on BP. 1% isn't likely to cashflow in many markets, especially ones with nasty property taxes like here in MI, for example.

    0Reply
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