1% test or 2% test? How do you interpret the results?

Question

Hello!

I am a total newb on this site and in this investment space and Im looking for my first deal! I have a few properties that interest me and I am running both the 1% test and 2% tests on them. 5 properties in a row have resulted in the test for 2% FAIL and the test for 1% PASS on the same properties.  I guess I am unclear on how to determine weather these are potentially good deals. I know there are alot of other variables involved but if someone could shed some light on how to properly use, analyze, and apply these test, I would really appreciate it! What margins on these rules make YOU comfortable in moving forward? THANK YOU!

Matthew C.

Theresa Harris · Answer

Look at the actual numbers, not percentages.  A lot depends on the price of the home itself (eg $100K vs $500K).  Look for homes in good areas.  The numbers on paper are higher for less expensive homes, but you have higher turnover and often more problematic tenants.

Karl Denton · Answer

I am to assume your running them on the BP Calculator, we may need some more info on this property. However you need to look at if you can at least get that 1%, remember you'll be building equity in this as long as your rents will be paying down the mortgage. Another good point to look at is are there any repairs or improvements that can be done to charge more of a premium for the rents? Lots of moving parts but look at the big picture, if it seems to risky for your first one then keep analyzing deals.