Multifamily 1 Percent Rule

3 Replies

Hi Fellow BPers, 

I am looking into duplexes or triplexes. However, I’m confused as to how one applies the 1% rule. I know the 1% rule is not set in stone but if I wanted to use it as a rough metric should I be looking to a multi that gives me a 1% return with only one unit being occupied or when both are occupied? 
I understand that there will have to be savings for when there is a vacancy but I’m trying to figure out how to filter homes faster. 

Thank you all in advance! 

Hi @Bessy Reyes , you'll want to look at the TOTAL rent value of the property compared to the value of the property.  So, if there are 3 units and they rent for $1,900+$1,900+$1,200 then your total rent value of the property is $5,000 monthly, which would correlate to a $500,000 property using the 1% rule.

This tends to be just as good fo a "quick and dirty" filtering guide with small multifamily properties as it does with single family homes.

Hi Bessy, there are a number of “qualifiers” you can use to get a down and dirty on whether to investigate a property.

I simply need the price and with cap rate or NOI to get all the information I need. If I have the NOI I can then subtract my annual cost of leverage (need rate, LTV, and term) to get my pre-tax cash flow. It's a 2 minute calculation that tells me whether I should be interested.