Is the 1% rule dead in today’s market?

[Cayden Campbell]

Been analyzing a lot of rental properties lately and I keep noticing the same thing:

In a huge number of markets, deals that would’ve worked a few years ago barely break even now once you factor in current rates, taxes, insurance, maintenance, vacancy, and repairs. A property that rents for $2,000/month used to feel decent at ~$200k. Now I’ll see similar homes listed at $320k-$400k with worse financing. At the same time, I still occasionally find deals that cash flow surprisingly well — usually in secondary markets, smaller metros, or properties most people scroll past.

So I’m curious where everyone stands right now:  Are you still using the 1% rule at all? Have your buy criteria changed since rates jumped? Are people adapting or just forcing deals to work on paper?

I’m starting to think the bigger issue isn’t bad investors, it’s that a lot of people are underwriting based on appreciation assumptions instead of actual cash flow now.

Would genuinely love to hear what markets and strategies are still penciling out for people here.

[Bill B.]

The 1% “rule” is 18 years old, back when interest rates were around 6%.  

It was created for small market in Washington with low taxes and insurance and no HOAs.  

Anyone who applied it outside of that market might not have known that? Can you imagine the fool that applied it to a $40k, 100 year old home in the Midwest? About his neighbor the fool who applied it to a $120k ski condo with a $600/mo HOA? And lastly their uncle who tried it on a $200k 4plex with $4,000/year insurance and $5,000/year property taxes?

When that rule “came out” you could crush it in Vegas with 0.8% and make money at 0.7%. But we have “young” properties with cheap insurance, low property taxes, a community of young renters, and no state income tax. 

You have to make a rule for your property type, in your price range, in your market.  Ask anyone with several properties in one market and they can tell you 15 seconds if they’re interested in a property.  (Ps. The 1% rule was ONLY meant to tell you if you should research it all BTW. It was NOT a sign to buy or not buy. It was meant to show you a better than average properties, not minimum requirements.) 

Lastly the cheaper the property the higher the rent to price ratio and the less money you’ll make overall. (It HAS to go down as prices increase or NOBODY would rent out 10 $500k homes when they could make just as much with one $5M homes.

People have been calling the 1%brule “dead: for at least 10 years with zero research. Search for 1% dead on BP, it might be more than 10 years. I think they just want an excuse not to start investing.