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1% Rule

1% Rule

What is the 1% Rule?

The 1% Rule is a general guideline that helps property investors quickly determine if the investment opportunity may make sense. Investment properties generally should yield more rent than 1% of the total purchase price to be a worthwhile investment.

How do I calculate the 1% Rule?

\[ {Monthly \, rent \over Purchase \, price \, } * 100 \% > 1 \% \]

Example

Imagine I purchased a duplex for $150k and the two units rent for $500 and $750. Does it pass the 1% rule?

No, it does not. (500 + 750) / 150000 * 100 = 0.83333333%

What if the 1% rule is not met?

Keep in mind that this is just a guideline and not necessarily a hard and set rule. If the facts change where the purchase price decreases or the monthly rent increases, the opportunity may still be a good deal:

  • If you can get the seller to sell the property for less, the opportunity may become attractive.
  • If you rehab the property, you might be able to fetch a higher monthly rent.
  • If the unit is under market rate rent, you can consider charging market rate rent depending on the laws in the area.

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