All Forum Posts by: Ted Barrett

Thanks, all. Trying to encapsulate all the replies here, and I appreciate the thoughtfulness. I'm not looking to compromise on the analysis; rather I just am still seeing "2024" articles coming up about the 1% rule being a good rule of thumb and wanted to make sure I wasn't missing anything obvious. Seems like I'll need to use a higher figure as my rule of thumb "i.e., 1.2%" and adjust based on big ticket items like property tax. Conversely, if I'm only seeing properties fail the 1% rule in a given area, it's probably a good signal to look elsewhere unless a particularly good deal pops up. It also seems like I'll need to do value-additive work (i.e., BRRRR) in most areas to make things work (and ultimately to get the best return); my hope was to find some more "turn key" properties to get my feet wet, but I'll see what's out there and maybe start with a more manageable rehab / lower price point to mitigate the risk of botching the work.

Hi all,

I've been trying to find updates of the 1% rule and whether it's working in 2024, specifically when you're using a mortgage at 80% LTV, 30-year mortgage. Looking at rates today, if I were to buy a property for $125k and have a $100k mortgage, the rate would be 6.25%, and with a 30-year mortgage, that's $7.5k of annual mortgage payment. Annual rent with the 1% rule is $12.5k. This means that mortgage payments eat up 60% of rent even before considering vacancy. This means the 50% rule fails now (50% + 60% = 110% --- 10% more in costs than rent), and other cost estimate methodologies seem to yield negative net cash flow.

Am I thinking about this correctly? Has anyone who has historically used the 1% rule modified it to accommodate current interest rates?

Thanks,
Ted