Buy and hold 1% rule question

4 Replies

So here's the situation. My area generally falls short of the 1% price to rent ratio I desire. It's more along the lines of a 0.70% to 0.75% ratio. I'm a buy and hold guy looking to BRRRR my way to financial freedom. I have one rental property refinanced and am currently looking for number two! Since I intend purchase a BRRRR house along the lines of the 70% rule, and the local area tends to rent at about 0.70% price to rent. Is it wise to consider that as meeting the 1% rule that I aspire to acquire? The numbers seem to suggest that it would cash flow a couple hundreds bucks a month. I just wonder if i'm missing something. Thanks for your thoughts.

@Phill Phelan the 1% monthly rent to price ratio is simply a rule of thumb, not a law. There are lots of people on BP that will say they'd never invest in a property unless it at least meets the 1% rule of thumb, I personally am not one of them. Many people successfully invest in properties that fall under the 1% rent to price ration by buying value add deals and forcing equity. Also, many markets where the rent to price ratio is lower than 1% are markets where there is a reasonable expectation of appreciation based on historic performance (ie property value and rents). So, plenty of people find deals where they can force equity and get enough cash-flow to ensure they can hold the property longterm. Over time, the property value and rents continue to rise and over the life of the investment this can turn into a great overall return. Some markets are more of a cash-flow market, others are more of an appreciation market and yet others are a blend of both. Your strategy will be very specific to what works in your local market. All the best!   

While I may have phrased it differently, I agree with @Joe Villeneuve . The only numbers that matter are the actual ones. Rules tell you nothing about your bottom line. Look at the cap rate or cash-on-cash return. The cash-on-cash is really all that matters actually.

Originally posted by @Ali Boone :

While I may have phrased it differently, I agree with @Joe Villeneuve. The only numbers that matter are the actual ones. Rules tell you nothing about your bottom line. Look at the cap rate or cash-on-cash return. The cash-on-cash is really all that matters actually.

 ...and a box of chocolate the the pretty lady from California.  LOL