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!
Now that you've screwed around with the percentage rules, analyze this deal with the numbers that really matter...the ones with actual $$$ signs in front.
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