Looking for something to meet 1% rule in Arizona or TN

Huntington Beach, CA · Member since 2019 · 49 posts · 21 votes

I am currently looking for a property to meet the 1% rule. I want it to be low maintenance, so I would like a new(er) property. I am a buy and hold investor. I currently have a property in TN and live in CA so Arizona seems interesting as it is close. Any ideas? Thank you in advance.

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Chad McMahan

Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes

Originally posted by @Mike B.:

@Chad McMahan

At the risk of thread hijacking: can you elaborate?

Hi Mike.

You bet. If approached correctly (hand picking those with the greatest potential for STR cash flow improvement + best current as-is cash flow), Sedona SFH's between $1M - $2M are yielding gross monthly income at approx. 1%-1.5% of purchase price + renovation, especially after reasonable improvements (Some are completely turn-key but have higher cost, some need $50k - $200k).

And I agree with another post that in most areas, this is not attainable anymore. I'm extremely Sedona STR savvy, as it's 95% of what I do and even I have to bend over backwards and really hustle to put together transactions for my clients that yield these results. Some of the challenges:

1) Pairing clients with properties that with an affordable plan yield the results the clients need

2) Get the property into contract in this aggressive sellers' market with strong STR property buyer competition

3) Deep due diligence to minimize property risk during inspection period + create best COE plan to yield the highest possible cash flow + start scheduling post-COE reno work

4) After COE, get the hot potato moving- help in any way necessary to make sure my clients get this work done quickly and without complications so they can get their property on the rental market ASAP and start generating cash flow.

5) Occasional STR audits as requested (always an option) by clients, to further boost their cash flow, and effectively their home value- based on income approach. I recommend this 1-2 times per year, as it yields a 10% annual boost, on average. Short version, I analyze current marketing approach, behind the scenes booking software and of course the property, to see what can be economically(usually free) improved, to push the net income higher. I then provide a list of recommendations and if desired, communicate with the local property management company (I'm on great terms with all of them).

Mike, if you would like further clarifications and elaboration, just let me know.

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Chad McMahan
Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes
4y
Originally posted by @Stephanie Gledhill:
I am currently looking for a property to meet the 1% rule. I want it to be low maintenance, so I would like a new(er) property. I am a buy and hold investor. I currently have a property in TN and live in CA so Arizona seems interesting as it is close. Any ideas? Thank you in advance.

Hi Stephanie.
If your budget is high enough ($1M - $2M), my clients in Sedona are getting over that. Reach out if you would like to discuss it.

1 Reply
Justin Phillips
Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
4y
With this market (appreciation and low rates) I think the 1% is outdated. It's still a nice benchmark to strive for, but increasingly hard to hit. With the lower rates/payments, you don't need quite the rent to cover expenses. Just my two cents, we've always got to adapt with the market. Best of luck in the search! AZ is growing like crazy, TN isn't far behind from what I've heard.
1 Reply
Jonathan Schlimme
Real Estate Agent · Charleston, SC · Member since 2020 · 19 posts · 14 votes
4y
I have spent some time with a friend who has a high end landscape construction business in Prescott AR, neat market , very pretty - there are tons of people moving there from out of state and that market seems to be attracting a lot of interest .
1 Reply
Mike B.
Rental Property Investor · Madison, WI · Member since 2020 · 91 posts · 71 votes
4y
@Chad McMahan
At the risk of thread hijacking: can you elaborate?
0 Reply
Chad McMahan
Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes
4y
Originally posted by @Mike B.:
@Chad McMahan
At the risk of thread hijacking: can you elaborate?

Hi Mike.
You bet. If approached correctly (hand picking those with the greatest potential for STR cash flow improvement + best current as-is cash flow), Sedona SFH's between $1M - $2M are yielding gross monthly income at approx. 1%-1.5% of purchase price + renovation, especially after reasonable improvements (Some are completely turn-key but have higher cost, some need $50k - $200k).
And I agree with another post that in most areas, this is not attainable anymore. I'm extremely Sedona STR savvy, as it's 95% of what I do and even I have to bend over backwards and really hustle to put together transactions for my clients that yield these results. Some of the challenges:
1) Pairing clients with properties that with an affordable plan yield the results the clients need
2) Get the property into contract in this aggressive sellers' market with strong STR property buyer competition
3) Deep due diligence to minimize property risk during inspection period + create best COE plan to yield the highest possible cash flow + start scheduling post-COE reno work
4) After COE, get the hot potato moving- help in any way necessary to make sure my clients get this work done quickly and without complications so they can get their property on the rental market ASAP and start generating cash flow.
5) Occasional STR audits as requested (always an option) by clients, to further boost their cash flow, and effectively their home value- based on income approach. I recommend this 1-2 times per year, as it yields a 10% annual boost, on average. Short version, I analyze current marketing approach, behind the scenes booking software and of course the property, to see what can be economically(usually free) improved, to push the net income higher. I then provide a list of recommendations and if desired, communicate with the local property management company (I'm on great terms with all of them).
Mike, if you would like further clarifications and elaboration, just let me know.

2 Reply
Ethan M.
Member since 2022 · 15 posts · 17 votes
4y
@Justin Phillips I was wondering if you could elaborate a bit on your comments on the 1% rule. Understood that these rules are guidelines, how do you then think about the 1% rule. Do you decide that you'll filter potential leads instead in terms of a figure like 0.7%, i.e. the 1% rule is now the 0.7% rule? In this case we'd be saying that we need to accept a higher risk of investing in some property that is not cash-flow positive? Or do you take this further? That we can't evaluate investments in many markets right now in terms of cash flow positivity?
1 Reply
Jonathan Schlimme
Real Estate Agent · Charleston, SC · Member since 2020 · 19 posts · 14 votes
4y
Hey Stephanie - did you end up buying anything in either market ? Curious what you decided to do !
0 Reply
Alex Talcott
Attorney · Durham, NH · Member since 2019 · 292 posts · 126 votes
4y
Quote from @Justin Phillips:

With this market (appreciation and low rates) I think the 1% is outdated. It's still a nice benchmark to strive for, but increasingly hard to hit. With the lower rates/payments, you don't need quite the rent to cover expenses. Just my two cents, we've always got to adapt with the market. Best of luck in the search! AZ is growing like crazy, TN isn't far behind from what I've heard.

The economics can be fun or frustrating. Some geographic markets don't require or you can't find 1%-rule, others -- if more stagnant in population in income growth, and depending on property taxes and utility costs -- require 2%+ for likelihood of cash flow amidst rising interest rates, inflation, and workforce shortage/uneager labor.
0 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
I have a market that I invest in, in Texas that meets that 1% rule regularly. Happy to talk more about it
0 Reply
Javier Rivera
Member since 2022 · 3 posts · 0 votes
4y
Hi Stephanie! Where is your current TN property? I service the middle TN (Nashville, Knox, Chat) We still see quite a bit of 1% rentals here
0 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
4y
@Javier Rivera
Where are you finding 1% rentals in Middle TN?
0 Reply
Javier Rivera
Member since 2022 · 3 posts · 0 votes
4y
@Luka Milicevic
I've got one in Cleveland right now
0 Reply
David GoodmanBusiness Member
Realtor · Nashville, TN · Member since 2020 · 172 posts · 92 votes
4y
Quote from @Javier Rivera:

Hi Stephanie! Where is your current TN property? I service the middle TN (Nashville, Knox, Chat) We still see quite a bit of 1% rentals here

Do tell...
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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
4y
@Javier Rivera
Cleveland is a solid market for cash flow as well as Columbus. Cleveland is pure cash flow, but Columbus is a hybrid of appreciation and cash flow.
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Wayne Woodson
Investor · Nashville, TN · Member since 2009 · 483 posts · 228 votes
4y
You won't find anything following the 1% rule in Nashville right now.
1 Reply
Taylor Bittner
Member since 2022 · 9 posts · 9 votes
4y
Hey Stephanie, the 1% rule will be pretty hard to find in the Nashville market right now, but it can be easy to find something in that criterion around Nashville as in Murfreesboro, Hendersonville, Columbia (Columbia is a HOT rental market right now!), and Antioch.
0 Reply
Mitch Davidson
Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
4y
Hi @Stephanie Gledhill. In a past life I worked with Roofstock. Memphis was always one of the best markets. I see they have some properties listed now that will come pretty close to 1%. And they shoot low on the rent estimates, so things may be better than what they seem there. I suppose some of the properties and locations might lend well to furnished monthly or even STR, but unsure.
0 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
4y
Quote from @Stephanie Gledhill:

I am currently looking for a property to meet the 1% rule. I want it to be low maintenance, so I would like a new(er) property. I am a buy and hold investor. I currently have a property in TN and live in CA so Arizona seems interesting as it is close. Any ideas? Thank you in advance.

Love the openness by asking for any ideas - sign of a smart investor! My advice would be to level set your expectations of a property first and what your highest priority is and then work towards finding a property that meets those expectations and gets as close to the 1% rule as possible. In today's market, buying a new property for maintenance purposes makes sense, but since properties have appreciated rather quickly over the past two years and rents are still lagging (although catching up) finding a quality property that meets 1% rent to price may be difficult.
If your priority is finding a great property that you expect to have relatively low maintenance and steady occupancy, then I believe you can find plenty of properties in multiple different cities in both Tennessee and Arizona that will be close to the 1% rule and close to median pricing. With longer occupancy and nominal rent increases each year, you can reach and surpass the 1% rent to price ratio threshold.
The biggest mistake I see investors make, and I mean no offense to anyone because after 20+ years as an investor I still make mistakes, is that they don't consider the quality of the area, the home or the management of their asset when trying to hit the 1% "rule". A lot goes into buying a passive investment and having it hit your expectations. Simply buying because a property meets that 1% ptr number on paper actually raises the risk that after maintenance and vacancy, an investor is no where near that number in performance. My idea would be to be open to a lower beginning % if the asset is high quality and the management is such that rent increases can be meaningful.
Good luck to you!
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Bryan Escudero
Investor · Miami · Member since 2022 · 48 posts · 48 votes
4y
Hi there. Jackson, TN can get you 1 percent. You won't get as strong appreciation as this not a major market, but if it is cash flow you are looking for, you can find it there. I would say you want to be careful with the age of the properties, but Jackson is a growing small market. Hope that helps. Good luck!
1 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
4y
Quote from @Taylor Bittner:

Hey Stephanie, the 1% rule will be pretty hard to find in the Nashville market right now, but it can be easy to find something in that criterion around Nashville as in Murfreesboro, Hendersonville, Columbia (Columbia is a HOT rental market right now!), and Antioch.

Easy to find 1% in Mboro, Hendersonville, Columbia?
I'm on every wholesale list and spend thousands on marketing costs a month and haven't found a 1% deal in those markets in over a year. You must have a deal source that is different from the rest of us mortals.
1 Reply
Taylor Bittner
Member since 2022 · 9 posts · 9 votes
4y
Quote from @Luka Milicevic:

Quote from @Taylor Bittner:

Hey Stephanie, the 1% rule will be pretty hard to find in the Nashville market right now, but it can be easy to find something in that criterion around Nashville as in Murfreesboro, Hendersonville, Columbia (Columbia is a HOT rental market right now!), and Antioch.

Easy to find 1% in Mboro, Hendersonville, Columbia?
I'm on every wholesale list and spend thousands on marketing costs a month and haven't found a 1% deal in those markets in over a year. You must have a deal source that is different from the rest of us mortals.

Hey Luka, and yes indeed I do, but a good a magician never reveals his tricks! If it is any consultation, start working with someone who deals in off market properties, that's where those otherworldly deals are!
0 Reply
Dustin P.
Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
4y
You won't get anything like that in Phoenix. Potentially you may get .75% if you can get a good deal on it
1 Reply

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