The 1% Rule Thumb For Cash Flow

[Juan Lara]

So I Just listed to Postcast #272 and I learned the 1% Rule of thumb "If a property rents for 1% or close to what you pay for it more than likely has positive cash flow" 

Your thoughts ?

[Andrew S.]

Hi Juan, Our 4-plexes cash flow very well 1%. That said: Financing requirements make a big difference. If I finance 100% of the purchase price, the interest on the HELOC used for the down payment will likely eat up my cash flow, even at 1%. Taxes can also get you. A disregarded entity pays far less in taxes than you would in another structure that incurs double taxation. Insurance costs, special assessments, sufficient provisions for capital expenditures, property tax increases, legal bills, etc can all pop up and force you into the red. Moral of the story, do your due diligence properly. A simple rule can guide you but it can also get you in a lot of trouble. Feel free to PM me to discuss further.