The 1% rule states that the rent on rental properties should be 1% of the purchase price of the property. For example; if the rent is $1,000 a month the price of the property should be $100,000. It can get a little trickier if you make repairs to properties before you rent them, then you should be adding the repair cost to the equation. If you buy a $100,000 property that needs $30,000 in work, you would need to rent the property for $1,300.
This rule is widely used by many investors, but rules can often get you in trouble. I am not a fan of rules because every market and investor is so different.
Property taxes are different everywhere.
Insurance rates are different everywhere.
Property management fees are different.
Maintenance costs are different.
Vacancy rates are different.
Different areas affect the expenses and returns as do different types of properties. Single-family homes will have different expenses than multifamily homes, and commercial properties will have different expenses than both of those.
I think it is best to write out what the expenses and returns will be for each property and base your decision on if it is a good investment on that analysis, not a rule.
If you figure out what percentage you can buy at in your market and for certain types of properties, then you can use that percentage as a very general guide, but I would still write out all the expenses.
You can also use my cash flow calculator to figure out what a property will make each month:
You can find my cash on cash return calculator here:
Here is an article I wrote on this subject as well:
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