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Updated about 6 years ago on . Most recent reply

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Is the 1% rule always applicable?

Andrew Martherus
Posted

I found a great looking property to house hack in Tempe, AZ. It's a turn key 4plex walking distance from a major University (ASU) and definitely a nice place for me and my wife and toddler to live in. The only problem is that it's priced much higher than the 1% rule would allow. According to all the advice I shouldn't even consider a place that is below the 1% threshold. Here are my questions:

Can I take on a higher purchase price if all of the uniters were remodeled and would therefore require little to no repairs or maintenance?

Can I justify a higher purchase price if I am loving in one unit and therefore do not need to pay my own mortgage?

Can I justify a higher purchase price when it's close to a major University so I would likely never have an issue finding tenants?

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Mike D'Arrigo
  • Turn key provider
  • San Jose, CA
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Mike D'Arrigo
  • Turn key provider
  • San Jose, CA
Replied

@Andrew Martherus personally, I think it's a meaningless metric. It says nothing about the bottom line and gives a distored picture when comparing returns across different markets since operating expenses can vary greatly by market. For instance, property taxes are nearly 3% in TX whereas they are only 1% in Kansas City and less than 1% in Birmingham. The only way to do a meaningful evaluation is to a projection of the full income and expenses and look at what the bottom line cash flow and CoC return is.

  • Mike D'Arrigo
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