Rising prices are crushing my 1% Rule Strategy, Any thoughts ?

Question

I am a fix and hold investor. In my market, the prices are going up so fast that I can't seem to make a competitive bid for a property. I follow the 1% rule where I am willing to spend $100k on a house that rents for $1k/mo. The houses on the market now are sold within the week and there is either poorly executed flips or fixer-uppers. The flippers are snatching up the fixer uppers. I want to add one more rental to my portfolio before August. Can expect the following:

1) The flippers are buying so they can have something on the market by May?

2) The prices are rising too fast and I should raise my price a bit and hope the rental market catches up? If so, is there any rules of thumb?

3) There are plenty of empty houses in my town, should I be contacting these owners to see if I can get a private deal?

4) Should I build something from scratch? I there any resources around that I can use to get the financials right? I can handle the actual construction.

Jay Hinrichs · Answer

have to factor in rising rents.. what is .07% 5 years from now is 1.2

Jay Hinrichs · Answer

number 3

Vince Stanley · Answer

I had known that rents rise but I never internalized that they would be so fast. Thanks.

Vince Stanley · Answer

I run RIO, Cash-In-Hand, and 1% Rule on all of my properties before I buy. I like this commentary as I am going to revisit my old calculations and see how good they were at estimating my returns. Thanks for the insight.

Marcus Auerbach · Answer

Don't get too hung up on the 1% rule - it's just a rule of thumb. Keep in mind the 1% rule has been arround when interest rates were double digit.

I have bought lots of houses that were more in the 0.7% to 0.9 range over the last years and they are all doing great. When you run numbers you'll find that higher price points are a little more tollerant.

And yes, number 3!

Theresa Harris · Answer

Forget the 1% rule (and the other rules). Run the actual numbers. The 1% "rule" is too subjective. Just look at property taxes. On a $250K property they can be $2500/yr in one area and in another they are $1500/yr. Those are close to the actual numbers for two of my properties in different area though the house prices are a bit different-the one with the lower taxes is now assessed over $150K more than the one with the higher taxes.

Vince Stanley · Answer

I had never stopped and questioned the assumptions of the 1% Rule. Thank you for the 0.7-09% range. I am going to revisit some of the properties on the market and sharpen my pencil. Thank you.

Rising prices are crushing my 1% Rule Strategy, Any thoughts ?

Rising prices are crushing my 1% Rule Strategy, Any thoughts ?

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