Is the 1% rule dead in 2023 ?
Investor · Atlanta, GA · Member since 2023 · 8 posts · 16 votes
Is the 1% rule dead in 2023 ?
Most Popular Reply
It's been dead, dude. Where have you been?
The 1% rule originated fresh off the hardest crash in over leveraged real estate coupled with the lowest interest rates. That's not a consistent theme to bet on, that's an aberration.
83 Replies
It's been dead, dude. Where have you been?
The 1% rule originated fresh off the hardest crash in over leveraged real estate coupled with the lowest interest rates. That's not a consistent theme to bet on, that's an aberration.
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes3y
You are correct for the most part in DFW area. Very tough to find 1% deals. Rent has gone up, but I would say not as fast as home prices. To cash flow you probably need to put down 30-40% in most cases. Every so often I'll see a 1% deal, but they're most often in D class areas. So with that you probably will have higher expenses. More wear and tear, more turnover, more theft, more issues....and as the neighborhood improves, rent may not keep up with values.
1% is kind of the target I target for my investors, but realistically that's the target and we normally have to back off of that....that's for LTR. Maybe rent by the room, or STR might yield you more, but I expect that is also more work.
- Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes3y
You can find a 1% on a class C+ or B tax sale or auction that needs $30K+ in sweat equity. I have not found a 1% on the MLS in maybe 10 years. You have to take smart risks to make money. Investing off the MLS is generally not a money maker.
- Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes3y
The 1% rule was never a rule - just a guideline and simple practice for quickly analyzing a property - and it hasn't been applicable for years, if ever in high-growth/high-ROI markets.
Good news is you don't need it so move forward with your search and set your own parameters for what is worth the investment.
Best...
- Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes3y1% rule is not dead, you are looking in the wrong place. I just purchased a 2% rule property in Central Texas in March. My portfolio average on 38 units is 1.6%. I still screen at 1%.
Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with this
1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website. I also target tax auction properties.
4) Look in the secondary and tertiary markets outside the large metroplexes.
5) Be prepared to do renovations. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesUsing the 1% rule died a long time ago. Just because you happen to be able to satisfy it doesn't make it alive...or a good deal.
Quote from @Pete Harper:
1% rule is not dead, you are looking in the wrong place. I just purchased a 2% rule property in Central Texas in March. My portfolio average on 38 units is 1.6%. I still screen at 1%.Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with this
1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website. I also target tax auction properties.
4) Look in the secondary and tertiary markets outside the large metroplexes.
5) Be prepared to do renovations. - Member since 2022 · 6 posts · 9 votes3y
Welcome to the investing world.
The 1% rule from what I see is still applicable in smaller markets or markets that are heavy rental markets like Ohio. Your able to find $30k properties renting for $800.
The closer you get to that rule, the more the other problems that come with rentals become more present. Things like vacancy, property repair and overall neighborhood issues. These places also do not have great economic drivers like population / job growth.
If your looking to meet this rule look for areas that aren't high growth.
- Investor · Atlanta, GA · Member since 2023 · 8 posts · 16 votes3y
Great insights everyone! Thank you!!
I am relieved to hear from seasoned players like you all that I need not stress on 1% rule.
Follow up question:
I am looking for a positive cash flow (after deducting the repairs, capex, taxes, insurance, property management fee etc) and appreciation in the long run. But I also want to scale and build a portfolio. Is that possible?
Thanks in advance
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with thisLook, if interest rate increases by 1% you have to offset that by adding more cash. Market is actually still the same like it's 2021 so 1% deal is still here, I still see 1% in Birmingham, it's just that you have to add more downpayment, that's all.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
The one percent rule more so applies to multifamily. Consider it dead with single-family.
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes3y
well, most of those are created, not listed outright on MLS. Value add, estate sales, rents too low, new tenant base. They are rare but out there but not sitting there winking at you usually.
And SFs have a very different expense profile than Multi's so that matters too.
- Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes3y
Quote from @Joe Villeneuve:
Using the 1% rule died a long time ago. Just because you happen to be able to satisfy it doesn't make it alive...or a good deal.Quote from @Pete Harper:
1% rule is not dead, you are looking in the wrong place. I just purchased a 2% rule property in Central Texas in March. My portfolio average on 38 units is 1.6%. I still screen at 1%.Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with this
1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website. I also target tax auction properties.
4) Look in the secondary and tertiary markets outside the large metroplexes.
5) Be prepared to do renovations.
Just because you said its dead doesn't mean it is dead. Too many folks are too lazy to get out and hustle and find good deals.
- Real Estate Agent · Columbus | Toledo · Member since 2019 · 608 posts · 768 votes3y
Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with this1%+ can be had in smaller markets such as Toledo, Dayton, & Cleveland, OH
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesIt's dead. Those people you mentioned are just trying hard to resuscitate it.
Quote from @Pete Harper:
Quote from @Joe Villeneuve:
Using the 1% rule died a long time ago. Just because you happen to be able to satisfy it doesn't make it alive...or a good deal.Quote from @Pete Harper:
1% rule is not dead, you are looking in the wrong place. I just purchased a 2% rule property in Central Texas in March. My portfolio average on 38 units is 1.6%. I still screen at 1%.Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with this
1) You need to dig much deeper. All the easy stuff on MLS has been snapped up.
2) Look for small multifamily; duplex and foorplex. Much easier to cashflow with multiple units.
3) Look for off-market deals. I send out "yellow letters" using the county tax website. I also target tax auction properties.
4) Look in the secondary and tertiary markets outside the large metroplexes.
5) Be prepared to do renovations.
Just because you said its dead doesn't mean it is dead. Too many folks are too lazy to get out and hustle and find good deals.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Hi Rakesh, the idea of the 1% isn't dead. Anyone who says it is just doesn't know how to use it, at least in Cincinnati. I don't use it as a "rule" like everyone else does. I see it as a "okay this place has a chance", that is just my first qualification of if it will be close to making sense. Which for most properties it does
Sam McCormack Realtor - Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3yYep. I'm evaluating a 2 warehouse on 1 lot deal with SF. Saw this little handwritten for sale sign in the window.
Quote from @Jonathan R McLaughlin:
well, most of those are created, not listed outright on MLS. Value add, estate sales, rents too low, new tenant base. They are rare but out there but not sitting there winking at you usually.
And SFs have a very different expense profile than Multi's so that matters too.
Get creative, rattle some bushes, repurpose. - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Rakesh Balavanthapu
It's not easy in the DFW to find the 1% anymore. 5 out of my last 6 SFR I bought in the DFW area in the last year make the 1% rule, but it wasn't easy. I went sec 8 on my last one in March to make it. All in for 214k and it rents for $2465/mo. And rented two recent purchases out by the room in ft worth to make them cash flow. Market rent here is picking up steam. Usually about a year or two lag behind home prices which have shot up due to low inventory. Plus lots of investors looking for a place to park $ other than the stock market. So many investors are ok breaking even with RE for a few years is what I'm seeing. Good luck!
- 3yKonstantin GinzburgPro MemberMember since 2021 · 376 posts · 242 votes
Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with thisI wouldn't say that the 1% is dead but it is much harder to find now due to rising home prices and current interest rates. You may be able to find some deals on the MLS but you will likely need to sort through 100s of listings in order to find one that meets that criteria. Certain markets are also harder to find cash flowing properties in as well. I am not familiar with the DFW market but I believe you can find solid investments anywhere if you know where to look and have networked with the correct people. The properties I had purchased off the MLS over the last two years have all met the 1% rule in the Louisiana market but I have been specifically targeting 4-plexes which from my experience, seem to have a better cash flow than a SFH. You can also network with investor friendly realtors and wholesalers who would be willing to bring deals either directly to you or send you them as soon as they hit the MLS. Wholesalers have been able to find investors many good deals in most markets but you have to be careful, find a wholesaler you can trust, and personally screen the deals they give you. Unlike realtors, wholesalers have no fiduciary duty to the buyer or seller so they have less incentive to provide all the most accurate information that they can. If you do find a good wholesaler though, they can be an excellent source for consistent deals.
- Carrollton, TX · Member since 2015 · 415 posts · 371 votes3y
It's Dead, Jim.
Cheers... Immanuel.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes3y
Generally I like to get 1.4% on a fully remodeled house in a B area of Toledo. But finding deals is getting tougher so I’d settle for 1.2%. 1% would be worst case scenario like rehab budget goes over by 30k.
- 3yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
I understand that finding your first deal in the current real estate market can be challenging as market conditions can change over time, and what worked in the past may not necessarily apply today. Analyze the data from different angles, such as focusing on potential cash flow and rental yields, or identifying properties with high appreciation potential. Consider researching off-market properties, foreclosures, and auctions, and networking with other professionals in the industry who might have leads. Good luck!
- 3yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Quote from @Rakesh Balavanthapu:
I am a new to REI and trying to find my first deal. Have been listening to BP podcast episodes from 2020 and earlier and the numbers were no where near what they are today.
I have analyzed about 30 deals in Atlanta, Dallas and Columbus markets. Couldn't find a single property where it is meeting the 1% rule. Agreed that I looked at only MLS listings, but still.
Am I looking in the wrong place ? Or am I making any mistakes in my analysis? Not sure where to go from here.
Also, is there a place on BP where we can find market analysis? I am a pro member.
Please let me know how you guys are dealing with thisThe great deals will always be out there. Nowadays you will just have to work and look harder for them.
Back in the day, the 1% deals would fall off tree's in Toledo.
It's tougher now for sure.
Pick a market and your niche.
Look at tertiary markets in the Midwest where there aren't many cowboys in town lol
I've always loved Ohio, Michigan and Indiana...
Learn the market inside and out.
Negotiate hard and have cash to close quick.
Be quick.
Just bought one not to long ago in a B- class area of Toledo for $40,000, needs around $10,000 in rehab and ARV is $80,000+
3 bed, 1 bath
Rent will be $900pm easy peasy.
Wishing you much success
- Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes3y
It depends on the market you are in. In Tampa, you are not going to find 1% on or off-market within 30min from downtown. However, if you go 30-60min from downtown you can still find 1% to 2% off market. I've just assigned 2 properties at the 1% rule.
- Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes3y
@Rakesh Balavanthapu, rent-by-the-room investments here in Atlanta can easily meet the 1% rule. That being said your out-of-pocket capital expenditure increases due to room conversions. I have a whole team in place that can help you with property analysis, acquisition, tenant placement, management, and rent collection. If you're interested in learning more about the high-yield cash flow investment strategy of rent-by-the-room, feel free to shoot me an email or text to connect (contact info is listed in my bio).
Join the conversationCreate a free account to reply, vote on answers and follow this thread.