1% Rental Rate for real?

Investor · San Francisco Bay Area · Member since 2019 · 119 posts · 79 votes

How realistic is this? I haven’t found many properties that would fall into this category unless I look into some not too awesome neighborhoods

Additionally I remember hearing from someone that it’s really 1.3%

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

1. You bought your $8 million property in Houston, not San Francisco.

2. You bought an $8 million property with a company that manages 1,500 units. The OP is probably a beginning investor trying to find 1-4 units.

3. I did a quick search of multi-family properties priced at $7 - $9 million in Houston and San Francisco. $7.5 million will buy you 12 units in San Francisco on a 3,100 sq.ft. lot. That same money will buy you 143 units on 6 acres in Houston.

Just because you hit the 1% mark on an $8 million property in Houston doesn't mean the OP can find a 1% property in San Francisco as a beginning investor. In fact, I'm willing to bet you can't find one in San Fran for $8 million which is why you're buying them in Houston.

Maybe I missed some hidden nugget of wisdom in your post but it sure sounds like you just hopped on to pump your ego.

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Todd Powell
Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
7y
@Ray Johnson no, I would never chase Cali market, but Oregon and Wa make more sense for the dollars and leverage.
I can imagine your market is impossible
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Sean Gallagher
TX · Member since 2014 · 151 posts · 23 votes
7y
Originally posted by @Todd Powell:
@Austin Largusa precisely why I dont owning SFHs! I love the leverage of a 4 plex and own 4 of them, as well as 5 and 8 plex with partner.
We exceed the 1% rule in a market that the rule does NOT exist! Working hard to find non MLS off market deals as well as owner financing with lower down payments! I have done this many times and the only way to achieve HUGE cap rates!

Little money invested is great but how are the actual numbers? Guess it depends how well you are able to make a deal with the seller, usually higher rates, lower money down could be risky. I haven't personally done a seller financing deal, I just can see the added risk though. Thoughts

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Tanner Marsey
Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
7y
Buy for the long haul and don’t worry about the 1% rule.
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Tanner Marsey
Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
7y
Originally posted by @Account Closed:
Originally posted by @Tanner Marsey:
Buy for the long haul and don’t worry about the 1% rule.

You are the kind of buyer I would be looking for as a seller.

Why is that?

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Cheryl Vargas
Rental Property Investor · Rohnert Park, CA · Member since 2014 · 307 posts · 160 votes
7y
In Santa Rosa, typical house price is $600k
And that could rent for $3000- $3500/ month. Never going to find the 1% rule here, unfortunately. But people still have rental properties here, so they must be making a profit somehow.
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Sean Gallagher
TX · Member since 2014 · 151 posts · 23 votes
7y
Originally posted by @Cheryl Vargas:
In Santa Rosa, typical house price is $600k
And that could rent for $3000- $3500/ month. Never going to find the 1% rule here, unfortunately. But people still have rental properties here, so they must be making a profit somehow.

I rented a room in union city, home was worth about 1m-1.2m, just your standard home, nothing crazy, no pool, no yard, etc. Total rent was 4500ish lol. 5br like 3ba

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Glidden Rivera
Rental Property Investor · Orlando, FL · Member since 2019 · 105 posts · 71 votes
7y
@Nathan G.
Hey Nathan,
While I am sure you are mostly correct about the property prospects, don’t fret. I would like to suggest that you may not be facing a lack of deal flow exclusively because they don’t exist in your area, but congruently; you may need to increase your level of understanding how to find them. Identify property prospects by continually being on the market, and understanding values.
Something noteworthy is this. The vast majority of people can not afford to own or rent in those high dollar communities, those ranks are not entirely filled scum. To get in the game, you may need to find those pockets where the majority abides. Good people who work hard for their families and are responsible are seldom rich but need a place to stay. In a sense, you need those good people as much as they need you.
Stay on the market, recognize a good deal immediately, pull the trigger before others catch up. Good deals are not found exclusively by luck but by near perfect attendance on our part.
Always be learning, always be fishing.
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Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
7y
@austin run all the numbers use BP calculator instead of looking for 1% and see what deals work for you. If the tenants are good (low vacancy) and you are using today's low rate mortgages (4%) you will be surprised at what deals cashflow. Be sure to adjust cap/ex % as this will be a much lower percent on a deal with higher gross rents then on a cheap 1% rental with low rents. Ask a local in your market to help figure out exact numbers to run. Good luck!
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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
7y
Originally posted by @Tanner Marsey:
Originally posted by @Account Closed:
Originally posted by @Tanner Marsey:
Buy for the long haul and don’t worry about the 1% rule.

You are the kind of buyer I would be looking for as a seller.

Why is that?

I think he's saying, since you're buying property hoping prices will go up, and you're not buying due to fundamentals of "does this property cash flow and provide a return", you'll be willing to over pay.
If I can buy a property that's a 6 CAP (or make it so), and sell it at a 4 CAP to someone that's counting on appreciation, I've just done pretty well.

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Cheryl Vargas
Rental Property Investor · Rohnert Park, CA · Member since 2014 · 307 posts · 160 votes
7y
@Sean Gallagher
Wow! That’s a great rental price for a 5/3 worth $1 million! Even less than the .5% rule that I see in Santa Rosa.
Prices sure are crazy in the Bay Area!
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Ron Gallagher
Investor · Washington, DC · Member since 2017 · 198 posts · 323 votes
7y
Sometimes you have to get creative to get rents up to meet the 1% rule. For example, I'm a buy and hold investor in the Washington DC area and my last three Class B properties have met the 1% rule, but only because I rent out by the room for maximum cash flow.
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
7y
I sold a rental in San Mateo Ca for 1.2 mil the buyer knocked it down and built a duplex-it was zoned R2. I'm sure he has 2 mil into it. He is likely getting 8k rent, total. I didn't do the math; but I know it is not 1%! LOL
If you are buying for appreciation alone just remember that Detroit was once the center of the universe!
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