SF rental rates in 2022 (1% rule apply?)

Chattanooga, TN · Member since 2015 · 3 posts · 1 vote

I purchased a new home in 2020 and started renting out my old home. It's in a nice neighborhood and we used the 1% rule. However over the last 2 years the appraise value of the home has risen from $250000 to $380000. He purchased the home in 2017 with 0 down for $230000. We have been renting it out for $2400 per month for the last year. The tenants under that contract are now moving out at the end of next month when we are trying to determine what anappropriate rental value would be based on this rapid appreciation. Is a gated neighborhood with a Community pool. Does 1% rule still apply or the 10% rule however it's calculated? Later? 1% of the homes value or 10% of the value over the year divided by 12 months?

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

Neither. If your home falls in value do you plan to lower the rent? Market rent is what people will pay to live in what is available for rent. There are plenty of people with $450k houses that would love to get $2,400/mo in rent. It sounds like you are randomly guessing. You might find out a PM can charge enough extra rent to pay for themselves.

More expensive properties rent for less per $ value than cheaper properties. When property values double rents might only go up 40-50%. Or less.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Neither. If your home falls in value do you plan to lower the rent? Market rent is what people will pay to live in what is available for rent. There are plenty of people with $450k houses that would love to get $2,400/mo in rent. It sounds like you are randomly guessing. You might find out a PM can charge enough extra rent to pay for themselves.
More expensive properties rent for less per $ value than cheaper properties. When property values double rents might only go up 40-50%. Or less.
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Sam Byrd
OP
Chattanooga, TN · Member since 2015 · 3 posts · 1 vote
4y
@Bill Brandt thank you for your reply. Do I understand you correctly that you advise finding a local property management group and ask about the market rate, or otherwise hire a property manager for this sole purpose? Please clarify for me just a bit what you propose I do.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Certainly contact them and say I own the property at this address. I have a tenant moving out and I’d like to know. 1) how much rent do you think you could collect. 2) how long would it take to find a tenant paying that much 3) how much would it cost me in charges to find and manage his tenant.

They can probably charge more than you as they’re going to do a better job advertising and screening. So either let them do it or set your rent somewhere between what they would charge and what you would net if the ran it. (You aren’t going to get more than them and if you’re only getting the same you’re doing the work for free.).

So if they say they can get $2500 and you would net $2200 after finders fees and monthly charges. You could ask $2300 and you’re being paid $100/mo to be a property manager. And you decide if that’s worth it to you.
Ps. I thought of something else. If the PM can find a tenant 2 weeks faster than you at $550/week rent you’ll actually only save $100 year being your own PM.
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Donna M.
Member since 2020 · 81 posts · 73 votes
4y
Go on Realtor.com or zillow rentals and put in your zip code and see what similar homes are renting at.
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Sam Byrd
OP
Chattanooga, TN · Member since 2015 · 3 posts · 1 vote
4y
@Bill Brandt thank you for advice and insight.
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Rodney Sums
Laveen, AZ · Member since 2016 · 584 posts · 528 votes
4y
Quote from @Sam Byrd:

I purchased a new home in 2020 and started renting out my old home. It's in a nice neighborhood and we used the 1% rule. However over the last 2 years the appraise value of the home has risen from $250000 to $380000. He purchased the home in 2017 with 0 down for $230000. We have been renting it out for $2400 per month for the last year. The tenants under that contract are now moving out at the end of next month when we are trying to determine what anappropriate rental value would be based on this rapid appreciation. Is a gated neighborhood with a Community pool. Does 1% rule still apply or the 10% rule however it's calculated? Later? 1% of the homes value or 10% of the value over the year divided by 12 months?
That rule is often used as a guide or way to screen a prospective property. You already own it so you don't need to use it to decide whether or not to hold it. Learn market rent for your property using methods others suggested. Once it's leased you will be able to calculate how it's performing. What you'll want to know is whether or not there's a better investment available by selling it, having access to the equity to reinvest, or leaving it alone.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Sam Byrd Huh?
What are you trying to do?
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Quote from @Sam Byrd:

I purchased a new home in 2020 and started renting out my old home. It's in a nice neighborhood and we used the 1% rule. However over the last 2 years the appraise value of the home has risen from $250000 to $380000. He purchased the home in 2017 with 0 down for $230000. We have been renting it out for $2400 per month for the last year. The tenants under that contract are now moving out at the end of next month when we are trying to determine what anappropriate rental value would be based on this rapid appreciation. Is a gated neighborhood with a Community pool. Does 1% rule still apply or the 10% rule however it's calculated? Later? 1% of the homes value or 10% of the value over the year divided by 12 months?

The "1% rule" is not a rule. It is not a law. It is not a fixed fact of life.
It is a basic screening tool that some investors use to quickly analyze property and determine if they are interested enough to investigate further or if they want to move on. And it's different for each market. Back in 2019, a fourplex would sell for $375,000 and the rents were around $2,800. Rent income was about 0.7% of the purchase price. I know that doesn't cash flow. I could then apply that rule to every property I look at and quickly determine that it's probably not going to cash flow unless rents are 1% or better. As soon as I see a property earning close to 1%, I know it's worth investigating further. It's a real time saver.
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Matt Bishop
Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
4y
@Sam Byrd, as a 24 year experienced landlord, I suggest you to find a great property manager to help you. If you find a good one, you will be way ahead by using their services. What city is your house located?
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Matt Bishop
Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
4y
@Sam Byrd, I very much agree with Bill. Engage the services of a professional property manager. Check their references carefully. They may already have a list of well qualified tenants. Don't go it, alone.
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Matt Bishop
Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
4y
@Bill Brandt, you're a smart man. The property owner will very likely have more net income by engaging the right property manager than trying to do the job, himself. All with no work. My PM emails me the current financial statement every month on the 14th and wires my money every 15th. I have 12 houses around DFW and I have never met any of my tenants or been inside the houses since 2017. I was extremely fortunate to hang on and find my PM when I was considering selling everything due to my health reasons. I am millions ahead.
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Lucia Rushton
Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
4y
@Sam Byrd. You can also ask the realtor who helped you buy the property to run some rental comps for you if you are going to self- manage the property.
Also the 1% rule which is now historic and doesn't apply to today's market was usually only used for the purchase underwriting. Just because the appraised value of uour home goes up doesn't need mean the rents will be in alignment. The rent is intended to cover your PITI and other expenses plus giving you +CF. Hope this helps
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Angie CastroBusiness Member
Real Estate Broker · Charlotte, NC · Member since 2022 · 133 posts · 128 votes
4y
Look at cap rates instead of the 1% rule. Hold the property and try to find a good property management company. They can help you arrive at a rental price more accurately.
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Sam Byrd rentometer.com. They have a feee calc but worth it to pay get more details.
Then check Craigslist, apartments.com and Facebook both listed and wanted. I like to average those too for a rough idea :)
This should give u a working idea of the market very quickly, you do t have to overthink this.
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