1% rule, 2% rule are BS...

[Łukasz Juraszek]

In the book How To Invest In Real Estate, the author claims that a property that doesn't meet the 1% rule will never be cashflow positive.

Here is a proof against it. Buy a property for 500K cash, rent out for 2.5K, subtract 1.25K on operating cost, and you're left with 1.25k in cashflow.

Is the author wrong or am I misunderstanding something 🤔?

[Account Closed]

1% rent ratio means 12% gross returns. Then assume 50% expenses and you get 6% net returns. After paying mortgage (assume 20% down) you eke out a small positive cash flow. Thats what the 1% means. But this applies to properties renting for around $1K per month. If your rent is $4K, there is no way your expenses will be anywhere near 50%. Or you can increase your down payment to cash flow.

Cash flow is important only if you are living on the income. Total return is what matters if you are accumulating wealth. That includes mortgage payoff and appreciation which is usually inversely proportional to rent ratio. Which makes sense because investors are willing to pay for the appreciation potential in lower rent ratios.