Is there any market that still meets the 1% rule?

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Is there any market that still meets the 1% rule?

Gagandeep Singh
Investor · Member since 2021 · 7 posts · 9 votes

I am looking for long-term rental property investment opportunities but none of the cities that are published as best places to invest meet the 1% rule. I looked into Huntsville, AL, and Columbus, OH which are referred to as the best places to buy real estate recently. Am I missing something? 

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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
3y

@Gagandeep Singh If you analyze lots and lots of deals you should eventually turn up some that are stronger than others. I've had two in the past five months that are at the 2% level. One has needed about $60,000 in work but will be a power house when I go to BRRRR it around December.

The second I’m getting ready to close on shortly and the appraisal came in right on point and we’re taking a leap of faith in the amount of money we have to put into it that down the road we will get that back out. This one when all is said and done needs around $90,000 in work.

I think right now there’s a lot of greedy sellers who just think the sky is the limit and don’t care that their buyers need a return on their money. Which if you can pay cash and assume you will get your cash back when you sell is fine but if you need a mortgage you still have certain margins you need to meet.

I see a lot of people singing the praises of the Midwest markets for good returns but just tonight there was a post about one investor who was three years in and waiting to break even.

Investing is a long game. It takes time. It takes patience. If you rush into a deal just to buy something you will get burned for sure. I definitely wouldn’t buy anything that didn’t meet my criteria. So make sure you have set your criteria and you stick with it even if you do change markets.

If you change markets build your team first or part of your team, and then start searching for good deals. If you find a good deal and have no team it’s a lot harder getting things together.

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  • Chris Parreira
    Investor · New Braunfels, TX · Member since 2021 · 12 posts · 8 votes
    3y

    It takes a lot of searching.. Around here most investors seem to be ok with something around 0.5% but I stick to searching until the right deal comes. I've closed 2 in the last 3 months over 1% one BRRR and one turnkey.

    2Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Gagandeep Singh If you analyze lots and lots of deals you should eventually turn up some that are stronger than others. I've had two in the past five months that are at the 2% level. One has needed about $60,000 in work but will be a power house when I go to BRRRR it around December.

    The second I’m getting ready to close on shortly and the appraisal came in right on point and we’re taking a leap of faith in the amount of money we have to put into it that down the road we will get that back out. This one when all is said and done needs around $90,000 in work.

    I think right now there’s a lot of greedy sellers who just think the sky is the limit and don’t care that their buyers need a return on their money. Which if you can pay cash and assume you will get your cash back when you sell is fine but if you need a mortgage you still have certain margins you need to meet.

    I see a lot of people singing the praises of the Midwest markets for good returns but just tonight there was a post about one investor who was three years in and waiting to break even.

    Investing is a long game. It takes time. It takes patience. If you rush into a deal just to buy something you will get burned for sure. I definitely wouldn’t buy anything that didn’t meet my criteria. So make sure you have set your criteria and you stick with it even if you do change markets.

    If you change markets build your team first or part of your team, and then start searching for good deals. If you find a good deal and have no team it’s a lot harder getting things together.

    7Reply
  • Sam McCormackBusiness Member
    Real Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
    3y
    Quote from @Gagandeep Singh:

    I am looking for long-term rental property investment opportunities but none of the cities that are published as best places to invest meet the 1% rule. I looked into Huntsville, AL, and Columbus, OH which are referred to as the best places to buy real estate recently. Am I missing something? 


     I am not sure about Huntsville, but I often see Cincinnati hitting those numbers and cash flowing. I also get a lot of off market from cold calling that do even better than that

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  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    3y
    Quote from @Gagandeep Singh:

    I am looking for long-term rental property investment opportunities but none of the cities that are published as best places to invest meet the 1% rule. I looked into Huntsville, AL, and Columbus, OH which are referred to as the best places to buy real estate recently. Am I missing something? 


     How many offers are you writing every week? If it is less than 3 you are doing it wrong.

    Also, you should think about doing a light renovation and increasing rents. A lot of times that will get you greater than the 1% rule

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  • Jimmy Bostic
    Investor · Columbus, OH · Member since 2023 · 73 posts · 82 votes
    3y

    @Gagandeep Singh Remington said it best. The deals are still here in Columbus. Low inventory, but they exist. Cleveland is another market you should investigate. 

    3Reply
  • Joshua JanusBusiness Member
    Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @Gagandeep Singh:

    I am looking for long-term rental property investment opportunities but none of the cities that are published as best places to invest meet the 1% rule. I looked into Huntsville, AL, and Columbus, OH which are referred to as the best places to buy real estate recently. Am I missing something? 


     Cleveland, Ohio has plenty of cash cows left. 

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  • Ernst S Coriolan
    Real Estate Agent · Kansas City · Member since 2023 · 35 posts · 34 votes
    3y

    We come across plenty of 1% deals here in Kansas City. As Alecia said it's about research and not giving up. Go to online events for these areas. Continue to reach out online to others that can give insight on these areas. Build a team in markets that interest you, give the agent your criteria and stick to it. Get on as many wholesalers lists as you can to see where these deals are coming from. The deals don't have to be off-market either. The majority of deals are on market and if they have been sitting for weeks the seller isn't getting many offers. If you come across a deal like that give them the number that would work for you and maybe you can strike up a deal. 

    2Reply
  • Gorden Lopes
    Rental Property Investor · Fremont, CA · Member since 2016 · 299 posts · 222 votes
    3y

    @Gagandeep Singh

    I have been investing in Huntsville for the past 5 years so I have my biases. Right now any market where 1% rule is met the properties most likely would be in C and below neighborhoods.

    If you are a long distance investor (like me) I would recommend staying in B class areas where tenant quality would be little better, you might have to sacrifice cash flow a little but you have better shot at appreciation. 

    Huntsville is a good market but it has seen a lot of appreciation in the past 5 years so you might not get 1% deals that easily...but with little effort you can get lucky...but to get lucky you will have to build your network by buying properties :) 

    2Reply
  • Jimmy LieuBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
    3y
    Quote from @Gagandeep Singh:

    I am looking for long-term rental property investment opportunities but none of the cities that are published as best places to invest meet the 1% rule. I looked into Huntsville, AL, and Columbus, OH which are referred to as the best places to buy real estate recently. Am I missing something? 

    Hi Gagandeep, Columbus Ohio is definitely a great market and as someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

    [email protected]614-300-7535
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  • Travis Biziorek
    Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    Detroit is the answer. I own 12-doors there.

    There are plenty of 1%+ deals in the city but you need to understand the landscape. Please don't just go in and start plucking "deals" off the MLS. This is how folks get burned.

    I know Ohio has become extremely popular but it feels a bit too hot for me.

    1Reply
  • Matt Scinto
    Member since 2021 · 16 posts · 6 votes
    3y

    @Gagandeep Singh no but right outside columbus in my marker there's some places that beat the 1% rule

    1Reply
  • Trevor Richardson
    Real Estate Broker · Reno, NV · Member since 2023 · 267 posts · 297 votes
    3y

    There are 1% deals in every market, maybe only excluding Manhattan and the SF peninsula. You just have to know how to analyze properties at a mass level. 

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    @Gagandeep Singh

    You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

    https://www.biggerpockets.com/member-blogs/3094/99854-deep-dive-into-metro-detroit-cities-ecorse

    Our analysis is a template you can follow for any city. Doubt you'll find this much info for any other market in the US. So, why would you invest remotely anywhere else?

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  • Michael S.
    Huntsville, AL · Member since 2018 · 578 posts · 864 votes
    3y

    Agree with @Gorden Lopes - you will not find the 1% rule for A/B properties in Huntsville/Madison right now unless you score a unicorn of a deal, or put up an enormous down payment to force cash flow.

    Even C properties right now are not easily 1% rule applicable.  

    A solid B property deal in Huntsville could net you up to 0.5% depending on the down payment amount in the best case scenario right now.  

    However, the majority of A/B properties purchases with 20% down would be cash flow negative currently.

    3Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    @Gagandeep Singh

    The ones that make the 1 or 2% rule usually have low appreciation. So your cash flow is decent, but after you’ve had a few turnovers after 10 years and have had some cap ex expenses, you’ve broken even or gained very little since the home hasn’t gone up in value much. Not worth it for me personally. And if you have turnovers every year or two, you’re really screwed. I’d go somewhere that will have 5% appreciation plus at least $200-400/month cash flow from the start. I’m in the Dallas area where it’s hard to get the 1% rule now, but population and job growth here keeps appreciation high in homes under the median price. My cash flow might only be $300/month from when I buy, but market rent keeps going way up each year due to low inventory making my “base hit” look like a double or triple in 3-5 years as I keep raising rent. Plus appreciation here is better than 5% due to low inventory and net population growth.

    4Reply
  • Becca F.
    Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
    3y

    @Gagandeep Singh

    I'm not sure if you live in an expensive city/state. I invest in the San Francisco Bay Area and Indianapolis area. My recent purchase, Indy SFH #2 closed in March 2023 is meeting 0.88% rule. I bought it turnkey with a few minor repairs. I would be fine with 0.7% now.

    I've put out 5 offers in the past month and I'm struggling with the getting the numbers right for BRRRRs and none of them are close to 1%. I don't hear many people mention this about these inexpensive Midwest markets but the property tax increases can really reduce your cash flow. On my first Indy house my property taxes have gone up significantly. Tax rate is 2.77%. It's going up another 10% for 2023-2024. I was cash flowing over $400, now it's $224. This is rent minus mortgage PITI and property management fee 10% (I don't include capital expenses in that calculation since I already set aside a reserve fund and the HVAC and water heater are 5 years old. I think some people use 5 to 10% for cap ex and vacancy.) I'll see the tax increase on Indy house #2 next year.

    For me I prioritize tax benefits and appreciation now over cash flow. I'm ok with -$100 to $0 cash flow if my property is appreciating and I can raise the rent each year.  I'm considering Nevada and Arizona which have much lower property tax rates and higher appreciation than the Midwest. The price point is higher but less than metro areas in California. I would rather own 6 to 10 high quality appreciating properties than 20 to 30 lower priced rentals (e.g. replacing all those roofs, HVAC, all the tenants, turnover and property management fees). Other people want lots of doors which works for them. 

    it all depends on your goals, financial situation, timeline, and risk tolerance. I would recommend look at property taxes and insurance costs and factor those into your projected monthly payments. Your property tax will be higher than what the seller is currently paying (unless the property is declining in value). Good luck!

    4Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    Markets and the economics behind real estate have changed so much over these past couple of years.

    The 1% rule was heavily touted a couple years ago.
    I think the general rule now is that you likely have to put down around 30% to 40% to cash-flow on a long-term rental.

    Best of luck.

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  • Brooks Rothschild
    Real Estate Agent · Carmel, IN · Member since 2016 · 24 posts · 9 votes
    3y

    I see plenty in the Indianapolis market still meeting the 1% rule. If you are looking in that area, don't hesitate to reach out. 

    1Reply
  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    3y

    @Gagandeep Singh
    You can still find solid 1% rule deals in C locations in Cleveland. 

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  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    3y
    Quote from @Alecia Loveless:

    @

    I think right now there’s a lot of greedy sellers who just think the sky is the limit and don’t care that their buyers need a return on their money
    Why would they? Just like why would buyers care that sellers need a return on their money?

    Whenever I see someone post that "I can't find good deals," I translate it as" "I can't find anyone stupid enough to leave money on the table."

    I remember the tale about the neophyte stock market player who went to his mentor and said "I just bought a block [100 shares] of IBM."

    The mentor responded; "So that means someone just sold a block of IBM, right?"

    "Yes, of course."

    "So which of you is smarter?"

    Greed doesn't enter into it.
    0Reply
  • Josh Urrutia
    Gibson City, IL · Member since 2016 · 15 posts · 9 votes
    3y

    Plenty all over the Midwest. Depends if you are looking strictly cash flow or needing appreciation as well. Some areas obviously better than others in that regard. But forced appreciation through mortgage paydown and rental price increases can't be overlooked. So while it may not be a 1% property now. It could be in the near future. 

    0Reply
  • Kris Kraatz
    Realtor · DFW · Member since 2022 · 16 posts · 5 votes
    3y

    Closing on a 1% deal tomorrow in far North Texas, these are very common.  On the market, off the market, doesn't matter.  It's the outskirts of your MSA's that 1% can we found in Texas.

    0Reply
  • Aaron Campbell
    Member since 2020 · 11 posts · 6 votes
    3y

    San Antonio Texas has some one percent deals on the south side. I have had 4 come across my desk in the last month. But they are hard to find and usually need some kind of work. I have seen alot more success hitting the one percent rule if it is a duplex or single family home with an ADU or something like that.

    0Reply
  • John P.
    Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
    3y
    Quote from @Aaron Campbell:

    San Antonio Texas has some one percent deals on the south side. I have had 4 come across my desk in the last month. But they are hard to find and usually need some kind of work. I have seen alot more success hitting the one percent rule if it is a duplex or single family home with an ADU or something like that.


     Texas “1% deals” are a lot different than many other states. Those property taxes are a killer! Run all the numbers. 

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    3y

    You need to factor in rent increases pretty much all the deals I broker since even 2018 or so are well under 1% but after raising rents and doing cosmetic rehab you can get the cashflow high and make some equity. I did just broker a .9% deal I sold off market in Chicago and this is a good area with $1400+ rents a unit so making friends with realtors and having them send you stuff before hits MLS is an option too.

    1Reply
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