1% rule for Buy and hold with Rehab Costs

[Cody Kantor]

Hello everyone, New to REI so I'm looking for a little advice and guidance. I may follow up with a more in depth deal analysis post but for now just a general question on how I should be looking at something. I believe I found a great opportunity in a quadplex selling for around $260k. It's in a great area and once rehabbed it should pull in around $3600 in rent total monthly. However I estimate that the property needs at least 100k to rehab (approximately 25k in each unit before I could even begin renting them out.) When looking at the general 1% rule (which I completely understand is a bare bones rough estimate) would I factor in the $100k on the selling price before I estimate the 1% rule? Or is the 1% applied solely to the selling price of $260k? Appreciate any insight you can offer! Thanks! Best, CK

[Aaron Mikottis]

I shoot for 2% although admittedly it always falls short. Realistically I consider 1.5%+ to be a good deal. I've got high property taxes in my market, however, and alot landlords around me pay water. Like Steve was saying, these variables can have a big impact on the bottom line, so adjust the rules of thumb according to your local conditions.

Also, I'd be wary of a rehab budget that large if you havent itemized the work yet, especially since at your figures you are just hitting the 1%. It seems that more often than not, rehabs go over budget. A rock solid scope of work will go a long ways to help you out. Just make sure that you have enough spread to cover unexpected costs.