Exceptions to the rules when buying

[Scott Kelley]

Hi all, I’m currently looking to find a “home run” buy and hold deal that will cash flow.  In my area, I really haven’t found anything because the market is currently so high.  I’m finding similar issues in other markets I’ve been assessing.

My question is this:  If you were to buy a house that didn’t meet the 1% rule for cash flow, what factors would you look at to break that rule, or would you ever buy a long term rental that didn’t meet the 1% rule?

There are some newer homes in my area (1-3 years old) that may be available at lower than market purchase prices, but they would generate between $2000-$2500 per month on a property that cost $300000-325000. Would you consider a property like this as a potential cash flow investment or only something to consider for appreciation?

Thanks
Scott

[Steve Vaughan]

Originally posted by @Scott Kelley:

My question is this:  If you were to buy a house that didn’t meet the 1% rule for cash flow, what factors would you look at to break that rule, or would you ever buy a long term rental that didn’t meet the 1% rule?

There are some newer homes in my area (1-3 years old) that may be available at lower than market purchase prices, but they would generate between $2000-$2500 per month on a property that cost $300000-325000. Would you consider a property like this as a potential cash flow investment or only something to consider for appreciation?

I would only buy based on cashflow when I was new 2002-2005 or 6. I could find any day of the week a 5 bed MLS house for $105k that would rent for $1250 If I allowed pets. $1250 at the time was well above avg.

As the years went by, I started focusing on equity capture. The purchase needs to be made at below FMV. These were usually cash or seller-financed buys from tired LLs. I'm ok breaking even when purchasing at 85ish% of 30-day market value. I also factor in (fudge?) principal paydown. Equity is more important to me now than it used to be when I was new. 'Cash-flow' can be inflated with long loan terms that keep you in debt forever.

Those new builds you mentioned look worth looking into further. With a 30yr loan at a low rate, they may pencil. How much below market value do you think you could buy at? Buying below FMV is what's important to me in this market.