Looking for counties that meet the 1% rule

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Looking for counties that meet the 1% rule

Kathy Diamond
Yonkers, NY · Member since 2023 · 36 posts · 12 votes

Hi all,

I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

Kathy

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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
2y

The 1% rule is one of the most flawed underwriting techniques anyone can rely on.  I've posted  this before but hope this helps dissuade you from relying on this technique:

Expenses disproportionately impact lower rent collecting properties. Take for instance an “A” located 1 +1 duplex where units rent for $2,000/m and compare the building to an identically designed “C” located 1+1 duplex in the same market where units rent for $1,200/m. Now assume each unit is occupied by 1 person. Common utilities paid by the landlord will be similar if not the same; standard services (extermination, changing filters, snow removal, fire safety inspections etc.) will cost the same.

Expenses will vary depending on the market. The cost of doing business varies from municipality to municipality. A $200,000 duplex might have identical rents in municipality “A” and municipality “B” but the property tax rates will vary, local regulations will dictate licensing requirements, labor rates will vary & the particular location will dictate insurance premiums since insurance carriers will weigh local replacement costs and whether the municipality is viewed as being a “plaintiff friendly” in arriving at insurance premiums.

Better situated assets will attract better tenants. While you shouldn’t categorize all tenants and it’s the landlords responsibility to properly screen, the tenants who reside in better situated housing and pay higher rents are more financially responsible meaning lower rate of rent loss and will generally take better care of the property which combined will result in less time allocated towards management functions if self-performed or more favorable management fee structures if 3rd party management companies are utilized (which ties back to #1, as well).

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      • Nicholas L.Pro Member
        Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
        2y

        @Kathy Diamond

        just curious - what are you hoping to get out of this?

        this will yield a bunch of random markets all over the country

        why not pick a market where you have some kind of advantage and focus all your energy on that?  either where you live, or a couple hours from where you live, or where you have family, or where you like to visit, or where you went to college, or whatever

        a lot of times choosing a market based solely on ratios or numbers goes poorly

        hope this helps

        3Reply
      • Bill B.
        Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
        2y

        Ps. It will also give you a ton of results of super cheap homes in very small towns across the Midwest. There are plenty/almost all towns in MN with populations under 2,000 people where you can buy a $50,000 house and rent it out for $600/mo+ and lose your shirt. 

        5Reply
      • Jerry Lakey
        Member since 2024 · 5 posts · 4 votes
        2y
        Quote from @Bill B.:

        Ps. It will also give you a ton of results of super cheap homes in very small towns across the Midwest. There are plenty/almost all towns in MN with populations under 2,000 people where you can buy a $50,000 house and rent it out for $600/mo+ and lose your shirt. 


         Is that because there is no work in those towns and the tenant won't be reliable or vacancies will be high?

        1Reply
      • Bill B.
        Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
        2y

        Because the cost of roofs, ac units, water heaters and so on don’t care if you collect $600/mo in rent or $3,000/mo.  Imagine buying a $7,500 roof every 6-8 years on your $50,000 house that collects $7,200/yr in rent. Or a $7,500 ac unit every 12, etc etc. 

        MAYBE, if you live in the town, and are VERY handy, and open an appliance, hvac, roofing company and are willing to travel to the 30 closest cities (since you won’t be profitable even if you get all the business in a city that size.) then maybe you’d do ok. And you’d know which houses to just abandon because even you can’t justify fixing them. 

        If you have zero vacancies, zero tenant damage, make sure utilities (especially heat) stay on every winter even if the tenant doesn’t pay.  Then yes, maybe you can a couple hundred a month on your $50k. Better known as 4.8%. Just a little worse than a bank CD. An no, there’s no appreciation, these homes are cheaper than they were 30 years ago. 

        5Reply
      • Stuart UdisPro Member
        Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
        2y

        The 1% rule is one of the most flawed underwriting techniques anyone can rely on.  I've posted  this before but hope this helps dissuade you from relying on this technique:

        Expenses disproportionately impact lower rent collecting properties. Take for instance an “A” located 1 +1 duplex where units rent for $2,000/m and compare the building to an identically designed “C” located 1+1 duplex in the same market where units rent for $1,200/m. Now assume each unit is occupied by 1 person. Common utilities paid by the landlord will be similar if not the same; standard services (extermination, changing filters, snow removal, fire safety inspections etc.) will cost the same.

        Expenses will vary depending on the market. The cost of doing business varies from municipality to municipality. A $200,000 duplex might have identical rents in municipality “A” and municipality “B” but the property tax rates will vary, local regulations will dictate licensing requirements, labor rates will vary & the particular location will dictate insurance premiums since insurance carriers will weigh local replacement costs and whether the municipality is viewed as being a “plaintiff friendly” in arriving at insurance premiums.

        Better situated assets will attract better tenants. While you shouldn’t categorize all tenants and it’s the landlords responsibility to properly screen, the tenants who reside in better situated housing and pay higher rents are more financially responsible meaning lower rate of rent loss and will generally take better care of the property which combined will result in less time allocated towards management functions if self-performed or more favorable management fee structures if 3rd party management companies are utilized (which ties back to #1, as well).

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          • Jerry Lakey
            Member since 2024 · 5 posts · 4 votes
            2y

            Just so I understand your point, are you saying expenses/labor rates, insurance, etc are higher in less favorable neighborhoods, rather than the upscale neighborhoods?  In my experience, contractors jack up their rates based on the money they see in the nicer neighborhoods.  

            0Reply
          • Sam McCormackBusiness Member
            Real Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy


             Hey Kathy, I want to say the Greater Cincinnati area as a whole, but specific counties include Hamilton county, Campbell county, kenton county (campbell and kenton are in Ky, Hamilton is Cincy). Let me know if there is anyway I can help you find what you are looking for!

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          • Benjamin AakerPro Member
            Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
            2y

            There really isn't a market that meets the 1% rule. That rule is used to evaluate a deal. It could be found in any market. It should be just one of many tools you use to evaluate. Even in New York, there are deals to be found that will satisfy the 1% rule, but that is the part that takes work. I recommend you evaluate deals close to home and be ready to buy when you find a good one. 

            2Reply
          • Carlos Ptriawan
            Member since 2019 · 7k+ posts · 4k+ votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy


             gary indiana
            town near birmingham alabama
            toledo ohio

            1Reply
          • Becca F.
            Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
            2y

            @Kathy Diamond

            I agree with the comments by Nicholas, Bill and Stuart. If you don't already have a primary residence, could you buy a property and house hack?  I invest in S.F. Bay Area, did a local renovation where I was able to do walk throughs with the contractor, and have pretty good control of this property, can check on it multiple times a week. I did a brief search of the Yonkers area and I know it's a high cost of living area. 

            Like @Nicholas L. said, maybe look within a reasonable driving distance from where you live, is there any city or state where you have family or friends that live there where you could travel to frequently and they could keep on the property for you or somewhere you visit a lot.  

            I used to live in the Indy metro area so I have friends there. I rented out the house I lived in (in nice suburb with low crime and great schools) - this Class A property is doing well 5 years rented so far, but the property tax increases are reducing my cash flow.  I knew the area but not down to a detailed level. The other markets I considered were Cincinnati, Cleveland, Memphis, and St. Louis. For the last 3 cities, I talked to turnkey companies whose numbers on paper looked good but decided not to go with those cities since I knew nothing about them. So I stuck with Indy.

            The 1% rule is flawed. I closed on a SFH that was at 0.88% rule in Indianapolis. This Class C SFH was supposed to cash flow $176 on paper at 6.99% interest rate. Purchase price was $130,000 supposed to be "turnkey" (bought with an agent not a company). I had a full inspection and there were some minor repairs done before the tenant moved in. For 7 months straight I was -$300 to -$700 a month because of repairs called in by the tenant (tenant wasn't breaking things as confirmed with Property Manager).A 100 year old renovated house is going to have problems. Also the brand new AC unit put in by the seller was stolen before tenant moved in - thieves climbed a 7 foot fence. For now it seems to have stabilized (owned a year). I also closed on another Class C home in Dec. 2023 - not rented out yet, trying to figure out whether to rent it out or sell and cut my losses.

            I've recently talked to many investors in California and one in NYC, at in person meet ups and by phone/Zoom. I think it's at least 50% chance that you'll lose money buying in an unknown inexpensive market. My story isn't even that bad compared to another CA   investor who bought 2 apartment buildings in the Midwest Class C and was told property values would go up with gentrification. She waiting for things to get better but after 3 years sold both buildings because of the non-stop repairs and tenant issues. 

            The reality is that you're buying in difficult market with high prices and higher interest rates. Many investors have had a really good run up from 2008 to 2022. My properties I acquired before 2013 are doing well. I should have left at that - I listened to too many people to acquire more doors and it will "cash flow".  If you decide to buy OOS I'd recommend  to  fly  out to the area. Would you live there? Is it run down? What are the surrounding businesses? Talk to multiple local investors who are unbiased  (someone not trying to sell you something), get multiple agents and contractors  feedback, and property management companies - two knowledgeble  PMs really opened my eyes to my Class C homes. If it's cheap, there's a reason it's cheap. 

            Here's my comment on a post "what no one tells you about real estate"  Good luck.

            https://www.biggerpockets.com/forums/48/topics/1165499-whats...

            6Reply
          • Michael SmytheBusiness Member
            Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
            2y

            @Kathy Diamond what Class of properties are you looking for?

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          • Remington LymanBusiness Member
            Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy


             You can find that in most areas of Ohio

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          • Alfath AhmedBusiness Member
            Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy


             Hey Kathy, the 1% rule can be found in mid-west cities. I recommend looking into the Columbus market. A lot of out-of-state investors from the east and west coast are investing here due to the crazy growth over the last 3-5 years. Columbus has become a major tech hub in the midwest with large companies like Intel investing $20 billion, Amazon investing $3.5 billion, Google building 2 new data centers: one in downtown Columbus and the other in right outside of U.S. 33 in Lancaster.

            I recommend working with an investor-friendly agent who focuses on cold-outreach methods like cold-calling, cold-texting, etc to bring you off-market deals. That is where you will be able to buy deals that are 70 to 80 cents on the dollar.

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          • Taz Zettergren
            Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes
            2y

            @Kathy Diamond I'm not sure how to find that info but I know Memphis has ample of opportunities that meet the 1% rule

            1Reply
          • Simon Ashbaugh
            Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy

            Hey Kathy, you should explore Cleveland OH. The city's strong rental market driven by a growing population ensures a steady income stream. On top of that, with affordability and a median home price below the national average, Cleveland stands out as an attractive option.

            1Reply
          • James Wise
            Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
            2y
            Quote from @Kathy Diamond:

            Hi all,

            I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

            Kathy




            I got some keyword alerts for Cleveland. Looks like some are pitching you on Cleveland. As an fyi Cleveland is a tough nut to crack for out of state investors. Before you spend your money here, check out The Ultimate Guide to Grading Cleveland Neighborhoods for a lay of the land. It should really help you avoid a lot of mistakes other out of state investors make here.
            2Reply
          • Dean HarrisBusiness Member
            Real Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votes
            2y

            I am seeing a good amount of 1% Rule properties in Memphis TN. I sourced 6-7 last week alone. I also just compelted an episode of my podcast titled "Do you know the 1% Rule". This info might be helpful and its free. 

            Im happy to answer any quesiotn you have based on my personal expierences. 

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          • Nadeem Alamgir
            Real Estate Agent · Member since 2023 · 831 posts · 577 votes
            2y

            Cleveland has deals hitting the 1% and higher

            2Reply
          • Nadeem Alamgir
            Real Estate Agent · Member since 2023 · 831 posts · 577 votes
            2y

            I would focus mostly on the westside, areas like West boulevard, Cudell, Clark-Fulton, Jefferson, Old Brooklyn.

            1Reply
          • Mica Moore
            San Antonio. Tx · Member since 2018 · 75 posts · 47 votes
            2y

            I bought a 3/2/2 SFH1000 SF, move- in ready ( built in 2003) for $165k but they wanted $175K but I paid cash & closed quickly.  The market rent rate is between $1600 to $1700. I'm getting $1650 which is exactly 1%. I'd rate the neighborhood B or high C. It's middle class, low crime, clean & zoned in one of the top desirable High schools. 

            This is in Corpus Christi, TX - Nueces County.

            0Reply
          • Stephen Akindona
            Investor · Memphis, TN · Member since 2013 · 741 posts · 845 votes
            2y

            @Kathy Diamond as others have mentioned Memphis and other midwest locations are ideal for the 1% rule. Also as others have stated this is probably the metric that matters least in your analyzation. Send me a DM if you wish to discuss further. We also created a free Memphis zip code guide that will help you identify which areas you should be looking at!

            0Reply
          • Bruce WoodruffPro Member
            Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
            2y

            I doubt many investors use the 'famous' 1% rule any more. IMHO, it is irrelevant.

            I have never used it to be honest. There are too many other variables to consider...

            1Reply
          • Daniel Brown
            Investor · Springfield MO · Member since 2023 · 30 posts · 21 votes
            2y

            I agree with what others have said using 1% for a county is almost useless.... I would look to invest locally first bc a deal can be found almost anywhere. After that if you want to invest out of your area look at land lord friendly states, or look at areas where home prices are between 150k-350k. Then compare rent rates and zero in on an area. 

            0Reply
          • JD MartinBusiness Member
            Moderator
            Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
            2y
            Quote from @Bruce Woodruff:

            I doubt many investors use the 'famous' 1% rule any more. IMHO, it is irrelevant.

            I have never used it to be honest. There are too many other variables to consider...


             It's literally just a 30 second thought process that gives you a quick idea if the place is even worth looking at. That's pretty much the value. The irony of the 1% "rule" is that those who could even use it effectively don't need it, ie if you need to spend more than 30 seconds thinking about whether it fits the guidelines you're probably not educated enough in RE to use it anyway. 

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          • Dean HarrisBusiness Member
            Real Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votes
            2y

            @Kathy Diamond

            I sourced about 12-13 houses that met the 1% Rule here in Memphis. I am seeing more and more of these as well. Im happy to send you some options

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