What's One "Rule" You Stopped Following Blindly?

Question

Real estate has plenty of rules of thumb—the 1% rule, 70% rule, specific return targets, and so on.

They're useful as starting points, but every market and property is different.

What's one commonly repeated investing rule that you now treat more as a guideline than a hard rule?

Greg Scott · Answer

All of them.

Any rule of thumb, followed blindly, will usually lead you to a bad outcome.

Adam Tafel · Answer

1% rule works as a solid benchmark in my local market at current rates. “Don’t buy weird shit” is a rule I live by 110% of the time.

Ryan Thomson · Answer

The 1% rule. Threw it out in 2022 and haven't looked back.

On a $400K property, the 1% rule says you need $4K/month in rent. In Colorado Springs, that doesn't exist at that price point. So if you applied it blindly, you'd never buy anything here.

What actually matters is debt service coverage. And that number changes completely depending on how you finance the deal.

I assumed a loan at 2.75% last year on a $380K balance. Payment was around $1,550/month. Same house financed at today's rate of 6.8%? That's $2,480/month. A $930/month difference in debt service before you ever talk about rent or expenses.

The 1% rule was built for a world where financing cost was relatively stable. Now that the rate on a given property can vary by 3-4 points depending on how you buy it (conventional, assumable, seller finance, etc.), a fixed percentage of purchase price is almost meaningless as a screening filter.

Better question: what's my actual cash-on-cash after real debt service? Sometimes the deal that fails the 1% rule at 2.75% beats the deal that passes it at 6.8% by $700/month.

The shortcut breaks when the input it's built on changes. Run the actual numbers instead.

Henry Clark · Answer

OP.  Tell us your stories on this topic.

Mine is type specific to Self Storage.

If it doesn’t Cash flow don’t do it.

I will probably still do it, if it fits my Spider web or Wagon Wheel strategies.

Ed O. · Answer

I believe in exposing those who are here, only farming aura. Everyone, Tracy is back to her aura farm. She is trying to establish a presence online as an expert and doing nothing to contribute to the board while posting these ai aided posts with an open ended prompt.

Tracy Thielman · Answer

Absolutely. The 1% rule can be a solid benchmark depending on the market, but “don’t buy weird stuff” is definitely a rule worth keeping. lol Sometimes the simplest properties are the easiest to operate and scale. Appreciate the perspective!

Tracy Thielman · Answer

Yes. The 1% rule can be a useful screening tool, but financing terms can completely change the actual performance of a deal. I think running the real numbers, debt service, expenses, cash flow, and cash-on-cash return, is ultimately more important than forcing a deal to fit a simple rule. Great perspective!

Tracy Thielman · Answer

That makes sense. Cash flow is a great baseline, but I agree that a deal can still make sense when it fits into a larger strategy or portfolio plan. It really comes down to the bigger picture and how the property supports the overall strategy. Appreciate you sharing that!

Tracy Thielman · Answer

Exactly! They’re great for getting you started, but the numbers and the actual deal should always tell the story. Appreciate your perspective!

What's One "Rule" You Stopped Following Blindly?

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