1% Rule and Cash Flow

[Mark Schwab]

I'm curious as to whether anyone is getting decent cash flow at 1% of purchase price?  Or more specifically,  is it possible to find good quality single family homes or duplex's (at least in an up and coming '"C" class neighborhood,if not a "B" for instance), where, after ALL  expenses,  you still can get a decent return?  Or how far above this baseline do you need to be? I realize "decent return" is pretty subjective, but can some of you share your own experiences?   This would have to be based on current or  recent deals, as I realize anything bought even just a few years ago may have been easier to purchase with good cash flow, especially in some markets that have risen dramatically. And it would be helpful to know if someone bought a turn key deal versus an off-market deal needing work, for example. And finally, Im not suggesting you use this metric as a strategy to go out and buy a property as an investment, but I am curious as to whether this is even a viable metric anymore.  Thanks

[Mike D'Arrigo]

@Mark Schwab The 1% rule never was a viable metric since it is not a measurement of cash on cash return in any way. If you're comparing properties all in the same market, it might give you a general idea if one opportunity might have a better return than another but if you are comparing across different markets, the 1% rule is meaningless since operating expenses can vary significantly from one market to the next. For instance, a deal with 1% in Dallas won;t have anywhere close to the cash flow and ROI that another deal at 1% in the Midwest with much lower property taxes and insurance. What is considered decent cash flow is different fo everybody but I can tell you that properties that have 1% rent ratios in Indianapolis and Kansas City where we do business cash flow very well. Typical CoC returns are in the 12-14% range on B class properties. Rather than looking at a rent ratio focus on the complete picture.