1% rule in Austin TX

16 Replies

Hello all, first post for me.

Does anyone know how to apply this rule to the Austin market? I've been looking for months and can't find anything that even touches 1% on austin. Or any other major market for that matter.

For example- my home is worth 350, and rent in my area is 1800-2100. Even at my original purchase price of 250K (4 years ago) I wouldn't meet that.

@Michael Tuck it is possible but usually 45 minutes away from downtown or more. I bought a duplex that exceeded the 1% rule off the MLS last year in East Austin so they are out there.

@Stephen Stokes

I checked that property out. It's at $280k plus needs full blown rehab, probably $75k after paying for permits in Austin. Rent for that area is about $1800-$2000 for a 3/2.

Maybe I'm looking at it wrong? It's about 4 miles from where I have a brand new 3/2.5 that would bring in 1900-2100/month.

@Michael Tuck

What price makes sense for your strategy? That is no doubt an investor property listed on the MLS in Austin that someone will eventually find a way forward that makes sense for both buyer and seller.

@Michael Tuck

duplex price : $550k ($7100 squarefeet lot and 1000squarefeet building both side)

1bed1bath each side. hydepark, 10 minutes drive to UT Austin

rental : $1200 each side

total rental : $2400

cashflow negative : -$1000 ( not including maintenance or property management . which will even make this to -1500 cashflow negative)

Appreciation: $5000

but the key here appreciation. so you can buy appreciation. thought

not sure what other think?

will you guy invest?

@Steve R.

I'm thinking that's the only metric people in austin are making purchases off of: appreciation.

At national average, that price should increase $27,500k in a year. If I could afford to float the negative cash flow for a couple years id make the purchase. But I'm not there yet.

@Michael Tuck the 1% rule has long been gone in most major metros for a "turn-key" investment. Most investment properties with 25% down are going to yield .5% or .6% in the Austin metro, depending on location and type of property. However, with enough scouting, you can find stronger deals OR create stronger deals with rehab. Fast appreciating markets generally do not meet the 1% rule, however, they can make up for it with the appreciation. Parts of the Austin metro have seen 25%+ appreciation in just the past 12 months. Everyone in this forum is going to have different goals, so you just have to invest using the goals that work for you.

@Michael Tuck forget about 1% rule it was never that helpful anyway and was for a time with 10% interest. I look at cap rate after you factor out average repair costs. Once you get what I call the true cap rate you can simply compare it to your interest rate so 6 cap 3% interest rate that means at current rents you make 3% on all the money you borrow without factoring in appreciation. 75% LTV loan that's a return of 15% without appreciation and 4X appreciation number. Unless it's interest only that probably wouldn't cash flow much. I'm a fan of interest only loans so you have positive cashflow recoup your money and still get appreciation.

@Michael Tuck

There are areas where the 1% rule will be almost impossible to achieve. I live in raleigh and for the past 5 years, have rarely found a 1% property that meets my qualifications. But on the properties I do have, they have appreciated like crazy so glad I did not sit around looking for 1% property.

@Michael Tuck

I live in the Austin area a well and looking to get into real estate for cash flow.

Any other Austinites down for a quarterly or monthly meeting over some beers to share stories and brainstorm? Who knows maybe partnerships down the road?

I live in Wimberley but work through out Austin area.

Mike

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