Is the "1% rule" even possible anymore?

10 Replies

I haven't revisited the KC market for a few years. Are finding rentals even possible in today's market (JOCO)? What are the investors out there doing? Just flipping, considering the part of the cycle we are in?

Originally posted by @William S. :

I haven't revisited the KC market for a few years. Are finding rentals even possible in today's market (JOCO)? What are the investors out there doing? Just flipping, considering the part of the cycle we are in?

William,

Yes 1% rule is still possible although a lot harder versus back in 2009-2012

And NO - not all investors "just" do flipping. You can still find buy-and-holds even in the cycle we're in. You just have to look harder and be more creative. 

I buy-and-hold 50+ unit apartment buildings but also wholesale's houses so I know both MF and SF markets.

Its very possible, look harder and smarter, you'll find properties that will fit the math. Anything less than 1% is too risky, especially if you're doing any kind of leverage (loans).

@William S. In Kansas City for single family homes, it's what every investor I work with is looking for, but every decent listing in a decent area seems to be at a 7-8% cap rate these days. I think most of that is due to owner-occupant demand driving prices up. More often I have found that investors have to buy distressed or outdated and then do a light rehab in order to achieve 1%. The caveat would always be it really depends on the area you are looking in as there are certainly 1% or greater deals in more risky areas.

@Micah Thomas

I'm only looking for single families in Overland Park and do not mind rehabs at all. Lowest I've seen is $180k, with rents ranging $1,500-$1,700/m.

@William S. did you see 6700 W 81st? It's still active on the market right now. With 4 beds it should rent for $1,700 - $1,800 a month which would get it pretty close to that 1% rule. My 4 bed at 7801 W 80th is at $1,700 a month and similar square footage. Definitely agree they are hard to find in OP. I monitor 66204 daily and there have been a few over the last couple of months that come on around $100k but need significant work.

1% and better is absolutely possible but you have to be looking where they are located and be looking for the right type of property. It does not make scenes for investors to compete with home buyers. Trying to find a 1% SFH, particularly in a high price market, is like trying to ride a horse that has only three legs. Of course it can be done but why.

@William S. Yes, it's still possible but a better question is does it matter? Rent ratio is a meaningless metric. It is in no way a measure of cash flow or ROI. Kansas City has fairly low property taxes so properties with a lower rent ratio will outperform those markets with higher rent ratios but higher taxes also. Ask yourself what is more important, a higher rent ratio or a higher cash on cash return? I know what my answer is.

6700 W 81st street has sat on the market for quite some time in the past due to multiple issues.  I looked at it after the listing had expired last year.  It'll be interesting to see if it moves or if they fixed the structural problems.  

I buy off market in JOCO and regularly hit 1% or better. It's a bit more challenging if you buy from MLS and pay retail prices.