What is the 1% rule?

Dear Clients and Friends,

Today, let’s talk about a simple yet powerful tool that real estate investors use to quickly assess potential investment properties: the 1% rule.

You might be wondering, what exactly is the 1% rule, and how does it relate to purchasing investment properties? Simply put, the 1% rule is a quick way to determine whether a rental property is likely to generate positive cash flow. It states that if the monthly rent of a property is equal to or greater than 1% of the property’s purchase price, it’s a good indicator that the property will cash flow well.

For example, if you’re looking at a property that costs $200,000, the 1% rule suggests that the monthly rent should be at least $2,000 for the investment to make financial sense.

Most of our investors use this rule to quickly decide, often in less than a minute, whether they want to explore a property further. In today’s fast-paced market, this is a great way to sift through opportunities and focus on the ones that truly have potential.

That said, in the current seller’s market, where interest rates are still a bit high (though they’re starting to come down), it can be a challenge to find properties that meet the 1% rule. So, what’s the strategy for investors? Many are purchasing properties that need a little TLC—properties that, with some improvements, can meet that 1% threshold when rented out. This approach allows investors to add value and achieve their cash flow goals after renovating the property.

If you’re thinking about purchasing an investment property and want to learn more about how the 1% rule can guide your decisions, we’re here to help. Whether you’re just starting out or looking to expand your investment portfolio, feel free to give me a call, send a text, or shoot over an email. We’re passionate about helping you build wealth through real estate, and we’d love to be a part of your journey.