Is the 1% rule dead in 2023 ?

Investor · Atlanta, GA · Member since 2023 · 8 posts · 16 votes

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

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

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.

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Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
3y
It's been so long since I've land lorded so I decided to look just to challenge the presumption that it doesn't exist in my area. I did a search in my area and found a house I could Section 8 and easily hit the 1% rule. Now my neighborhood I can't and that's by design. I live in an expensive neighborhood of hoity toity fops and I love it. However, I'm within driving distance of at least one deal though.
The real challenge is though when you're gotten to a point where you can really cover the expense of getting rental goings, you have to ask if it's worth it. An 8% dividend nets better than a rental on the 1% rule and you never have to go anywhere. You get capital gains. Sure you don't get passive losses. You gotta weigh your options.
4 Reply
Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y
@Rakesh Balavanthapu, its not dead AT ALL! Its just that hardly anyone seems to understand it.
Its a screening tool. If a deal is around 1% is usually will generate a small amount of positive cashflow. So, its around the break even point depending on the financing, expenses, etc. So, its just a way to zero in on deals to analyze more deeply and to ignore the ones that aren't close to cash-flowing.
The only way for the 1% rule to die is for rents to not rise as fast as expenses because then 1% would not be near that break even/positive cashflow point. In some markets the break even might be .8% and in some 1.2% but its usually near 1% I think that is why the "rule" is useful. Its not a hard "rule", its a "rule of thumb" to help you quickly screen properties and 1% is EASY math... $1000 rent and $100k purchase price. You don't need a calculator to see 1%!
So, if you can't find a deal advertised at 1%, can you find ones that are close and MAKE THEM 1% or MORE?!? A deal isn't what's advertised, its what you make of it by adding value, stabilizing units, raising rents, converting to short term rentals, adding amenities, etc etc. YOU MAKE THE DEAL, IT ISN'T MAKE FOR YOU!
5 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
Nope! Not i SE Mass anyways :)
0 Reply
Josh Bowser
Real Estate Agent · Atlanta, GA · Member since 2020 · 414 posts · 233 votes
3y
Hey Rakesh - you're not missing anything and pretty much correct.
There really isn't anything these days that is meeting the 1% rule for residential LTRs in the ATL metro.
I am seeing the 1% rule (or at least close to 1%) in Georgia markets such as Cartersville, Macon, Warner Robins, La Grange ect. You really need to go greater than 30-40 miles outside of ATL to hit these numbers on the MLS. However, there are a few off market deals that get passed around close to the 1% rule within the metro, but these are typically heavy value add.
We spoke the other day about the rent by the room strategy - this is the only place we are seeing solid cashflow within the metro at this moment.
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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
3y
@Rakesh Balavanthapu
You can definitely still find 1% Rule deals in Columbus OH. On and Off-market.
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
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

Heck no, All my rentals are 2 or 3% , at least 15% net caps based on cash purchases. I just closed in the last week. 7 unit ,all in 200k, NET rent about 53k, SF 4/2 all in 75k, 1300 rent. 2 br ( closed an hour ago) all in 55k, rent 850, ITS ALL about your team and knowledge,
good luck
2 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Bud Gaffney:

Nope! Not i SE Mass anyways :)

Must go out of state,
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Patrick Drury:

@Rakesh Balavanthapu
You can definitely still find 1% Rule deals in Columbus OH. On and Off-market.

Yep I can get as many as I want with 2%ish or better
1 Reply
Joe HammelBusiness Member
Real Estate Agent · Metro Detroit, MI · Member since 2018 · 612 posts · 666 votes
3y
@Rakesh Balavanthapu
Metro Detroit
(my rental portfolio is here)
Purchase: $80k-$130k
Rent: $1100-$1500 (no rent control in MI)
1% rule: 1%-1.4% rule deals
ROI: 10-14%
Cash flow: $250-$350/door (after all expenses and budgeting for maint, capex, vacancy)
Appreciation: 3-15% (has been double digit for a decade)
Location: C+, B-
These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets in the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.
We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.
The bad reputation of “Detroit” comes from OOS investors wanting $20,000, D class properties. We don’t buy those lol.
[email protected]248-422-1685
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Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
3y
It's dead, It's not dead. Blah, blah, blah. Meaningless debate. It was never a litmus test, it's just a quick ballpark calculation to consider along with many other metrics. In good times, you might find 2%. In challenging times, you might settle for .5.
BTW, it's not dead for investors that know how to apply it.
5 Reply
Anthony Fontana
Real Estate Agent · Atlanta, GA · Member since 2017 · 86 posts · 71 votes
3y
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

Rakesh - a few other people mentioned rent by the room and medium term rentals on this thread, we have seen great success with both of these strategies here in Atlanta. There are also certain exurbs of Atlanta 30-45 minutes outside of the city where we're still finding day-one 1% rule properties, specifically in the small multifamily space. Happy to connect..
0 Reply
Vicki X.Pro Member
Investor · Member since 2022 · 186 posts · 155 votes
3y
Quote from @Anthony Fontana:

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

Rakesh - a few other people mentioned rent by the room and medium term rentals on this thread, we have seen great success with both of these strategies here in Atlanta. There are also certain exurbs of Atlanta 30-45 minutes outside of the city where we're still finding day-one 1% rule properties, specifically in the small multifamily space. Happy to connect..

The 1% you referred to was before property management fees, right? It'll be discounted by 90% post PM? Thanks.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @V.G Jason:

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.

2% rule was worse and in 2012 you were a klutz if you could not find 2% deals.. :)
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1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Vicki X.:

Quote from @Anthony Fontana:

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

Rakesh - a few other people mentioned rent by the room and medium term rentals on this thread, we have seen great success with both of these strategies here in Atlanta. There are also certain exurbs of Atlanta 30-45 minutes outside of the city where we're still finding day-one 1% rule properties, specifically in the small multifamily space. Happy to connect..

The 1% you referred to was before property management fees, right? It'll be discounted by 90% post PM? Thanks.

0 Reply
Luke J Nelsen
Real Estate Agent · Milwaukee, WI · Member since 2020 · 105 posts · 41 votes
3y
@Rakesh Balavanthapu
Don’t get discouraged and keep running numbers. That’ll help you narrow down your buy box. You’ll find the right deal eventually. Gotta get your reps in now!
I bought all of my duplexes above the 1% rule in 2020 and early 2021. (Milwaukee suburbs) Closer to .007% now if you are getting top market rents. I’d assume every market varies though. It’s definitely much harder to find cash flowing LTRs right now.
We transitioned to STRs in 2021. Definitely more work but you get paid well for it.
0 Reply
Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
3y
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
Hi Rakesh, I'm an investor and agent here in Columbus Ohio and can definitely say there's positive cash flowing and 1% deals here. One of my clients just got under contract on a $200k duplex that is currently renting for over $2400/month just earlier this month! My best advice is looking for value add opportunities - looking for fixer uppers that need cosmetic work, finishing the basement to use as a bedroom, using as a STR/MTR, etc. Let me know if you have any questions or would like to connect, would love to help!
[email protected]614-300-7535
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Jill Addison
Rental Property Investor · San Diego, CA · Member since 2019 · 48 posts · 40 votes
3y
@Rakesh Balavanthapu I was getting right around the 1% rule in 2021 in Knoxville, TN. But the last two properties I bought there (in 2022 and 2023) aren't cash flowing nearly as well as the other seven I bought earlier. Now I'm researching pivoting to vacation rental markets and managing short-term rentals myself. Even this won't cash flow as well as it did a few years ago when prices were lower and interest rates were lower. But, it should cash flow better than long-term rentals. It won't be as passive, it will be more like a small part-time job to manage those I think. They always say at any stage that the real estate market cycle is in, there are opportunities, you just have to be willing to be flexible and look for what's working now. I always think about a guy I know who's in his 90s and has something like 90 doors. He never even really set out to be a big real estate investor, he just picked up a property every year. Just that consistent long-term effort is a lot like dollar cost averaging in the stock market. You'll get certain advantages and disadvantages at every stage, but as long as you just keep at it consistently over years, it will be worth it, as long as you're buying deals where the numbers make sense. Real estate is a long-term game. And over time it's pretty forgiving. Lots of benefits that you realize over decades, not just in the short-term: appreciation, tax savings, mortgage pay down by tenants, in addition to the more immediate value of the cash flow. Also, when I was getting these great deals in 2021, people were telling me "don't you want to wait until the market comes down? Prices are really inflated right now." Well, they just kept going up after I bought and I'm so glad I bought when I did, because soon after that the interest rates went way up. No one saw that happening as fast as it did. But the point is there will always be people who look at what the market is doing right now and say oh now it's not the right time to buy. Those people will never buy. If you put in the effort and don't give up, you will find your way to good deals.
2 Reply
Stefani Mokris
Investor · Verona, NJ · Member since 2023 · 55 posts · 29 votes
3y
Search on the Biggerpockets You Tube channel "high cash flow markets" and you will find a video from a few months ago on the top 10 cash flowing markets in the US.
0 Reply
Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
3y
Quote from @Jill Addison:

I always think about a guy I know who's in his 90s and has something like 90 doors. He never even really set out to be a big real estate investor, he just picked up a property every year. Just that consistent long-term effort is a lot like dollar cost averaging in the stock market. You'll get certain advantages and disadvantages at every stage, but as long as you just keep at it consistently over years, it will be worth it, as long as you're buying deals where the numbers make sense. Real estate is a long-term game.

Pure wisdom.
1 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
3y
Quote from @Pete Harper:

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% 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%.

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.

Purchase price from tax auctions would get more than 1%, but the problem is you can't invest money in repairs or refinance them for an extended period of time.
0 Reply
Austin Steed
Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
3y
Still seeing 1% rule in Columbus OH on proforma. Hard to find rehabbed properties getting max rents and 1% rule.
It's give and take to me. If you're willing to do some work you can force 1% rule but if you just want to sit back and relax you are going to pay a premium
1 Reply
Pete Harper
Rental Property Investor · Streetman, TX · Member since 2018 · 527 posts · 495 votes
3y
Quote from @Eric James:

Quote from @Pete Harper:

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% 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%.

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.

Purchase price from tax auctions would get more than 1%, but the problem is you can't invest money in repairs or refinance them for an extended period of time.
In Texas only six months on non-owner occupied. During the 6 month option period you can still charge rent. I purchased a property for $27k that rented for $500/month as-is. Still a 1.85% deal.
0 Reply
Account Closed
Columbus, OH · Member since 2023 · 427 posts · 254 votes
3y
I still come across deals like this in Columbus, though they're more rare in this market. Find off market deals beyond just what's offered on the MLS. Cleveland also a good market to look at if 1% deals are your primary goal.
1 Reply
Franklin Romine
Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
3y
Look at property with a different lense. Visualize how you can create the 1% rule after you acquire the property.
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Joshua JanusBusiness Member
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
3y
Quote from @Account Closed:

I still come across deals like this in Columbus, though they're more rare in this market. Find off market deals beyond just what's offered on the MLS. Cleveland also a good market to look at if 1% deals are your primary goal.

I agree!
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