New Financial Route

There are many ways to evaluate deals in real estate, but one of the quick and simple rules of thumb is the 1% rule, which states that the monthly rental income of a property should be at least 1% of the purchase price.

Example

Suppose there is a property that is selling for $150000 that is in good condition and does not need immediate repairs. According to the 1% rule, the rent should be at least $1500/month.

I found a deal that doesn’t meet the 1% Rule. Is it still worth it?

It should be noted that this rule is just to make a quick judgement of an investment deal since it does not take into account for additional expenses such as property taxes or insurance.

In addition, it will probably be very difficult to find deals that meet this criteria in high-cost costal markets such as San Francisco and New York City. It may not be realistic depending on your target market.

What if I’m looking at a property that needs work?

For fixer-uppers or properties that otherwise need renovations, add the price of renovations to the purchase price and calculate the 1% as so. For example, if you’re looking to buy a property that is 100,000 that needs 20,000 in repairs, the total investment is 120000. The rent would need to be at least $1200 according to the 1% rule.