1% rule in California?

4 Replies

New to real estate investing. Looking to invest in buy and holds in the Coachella Valley of California where the market is high. Not much I’m finding is within the 1% rule. Are there other metrics that I should look at in a high market?

Originally posted by @Sterling Riley :

New to real estate investing. Looking to invest in buy and holds in the Coachella Valley of California where the market is high. Not much I’m finding is within the 1% rule. Are there other metrics that I should look at in a high market?

 Don't think of it as the 1% rule, but rather as a ratio of monthly rents to purchase price. That "rule" looks different in every market. Some places it may be 2% and others it may be 0.8%. 

Hey, Sterling. I work for a brokerage firm that helps people invest in CA. We are trained, and use the Gross Rent Multiplier (GRM) when looking at our deals, which is essentially the inverse, or cousin of the 1% calculation. As opposed to dividing gross rent/Price, you divide price/gross rent which gives you a multiple. The lower the number the better. Once you have a feel for how the GRM works, you can use it as somewhat of a metric to measure deals in an area.

For instance, if the average GRM for a duplex in coachella valley is 15, and you find a property that you can bring to market at a GRM of 13, it could potentially be a good deal. Obviously depending on your goals, you might need a better GRM to make things work, but if you take an average of the market, it can give you a good ballpark of the market as a whole.

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