Evaluating Rental Properties

4 Replies

Will someone explain the 1% or 2% rule when evaluating a rental property that I am looking to wholesale. I received a call from a landlord responding to one of my direct mail campaigns, but I have never tried to wholesale a rental property.

Thanks

The 1 or 2% rule(or guideline as some around here call it), says you should get at least that percentage of the purchase price in rent each month. So for a $200,000 property, rent should be $2000(or $4000).   

There's quite a bit of debate on whether it's a good metric. Some areas it works. Many it doesn't. In my area, the only times you'll hit 2% are in bad neighborhoods. On the other hand, at 1% the properties I'm seeing won't cash flow decently. 

You'll also want to look into Cap rate and GRM, if it is a multi-family.

Generally speaking the 1% or 2% rule are not going to apply to the wholesaler as they apply to the buyer. Do a search for 1% rule or 2% rule and you will find more debate than you can handle. If you are the wholesaler, you need to be focused on a different set of criteria aimed at buying the house at the right price to make a profit and give the buyer a deal. The 1% or 2% rule are not going to get you there. Good Luck!

Thank You for the response. If you were going to wholesale the property, is the estimate repair value and the assignment fee included in the purchase price to determine the 1% or 2%.

Daren, I asked my question before I saw your post. I will do a search and read through the debates. Thanks.

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