1 percent rule question

[Mark Jones]

The 1% rule is a nice easy metric to use. What's the reasoning behind the number 1%? 

[Joe Hammel]

@Mark Jones

I think you understand the math but are just generally curious as to how it always seems to work.

It’s works because:

- the base costs for a property are principal, interest, taxes. Then on top of that are some expenses

It’s just the way it almost always works out, is the as long as rent is 1% of the purchase price it’s likely it will at least cover principal, interest, taxes and some maint savings, so it’s worth looking into and confirming it does.

Could go a step further and also argue that it includes location measures. If an area is a 2-3% rule…pretty likely there are some red flags and it’s a D or lower market or the house needs a ton of work.

If it's a .5% rule, it's probably in an A market (or not a good deal) and that's not necessarily going be a great balance of ROI a lot if investors are looking for.

Here in metro Detroit suburbs our sweet spot is 1.2-1.4% deals. They're plentiful and the balance of price/ROI/Location is pretty awesome