$400k, 1 to 4 unit property with 1% rule. Anywhere?

[Phil Mcnally]

Hi All

Conventional loans for residential property cover single family, duplex, triplex or fourplex. If I want to maximise each available loan without going into jumbo loan territory ($424k limit) it would be ideal to find a property that costs around $400k with a combined rent of at least $4000 a month to meet the 1% rule.

Where do these exist? 

I am thinking of a nice fourplex renting at $1000+ per unit. But in general more expensive areas that might have $400k fourplexes probably do not have good rent ratios.

Does anyone know of an area that satisfies this particular criteria?

cheers...phil

[Account Closed]

Phil,

Before you get roasted investing OOS using the 1% rule, please allow me to throw in my 2 cents:

Say $700/mo/unit for a 4plex asking $280k. 

Property management: $70/mo/unit or 10% of gross rent (don't know if they charge you half or full of first month rent)

Utility expenses: say average $100/mo/unit (Based on my experience)

Repairs & maintenance: say $70/mo/unit

Cap-ex: say $70/mo/unit

Vacancy: let's be optimistic and say 5% or $35/mo/unit

Insurance: say $35/mo/unit

Property taxes: say 1.2% or %70/mo/unit

Your monthly expenses are about 65%. In terms of cap rate, it's a 4.2 cap. What's the interest rate you think you can obtain of this asset OOS? If you borrow anything higher than 4.2%, you're negatively leveraging.

Say in my San Jose market, the average rent is $1,700/mo/unit for a 1-bedroom.

Property management: $85/mo/unit or 5% FLAT of monthly gross rent

Utility expenses: say average $100/mo/unit

Repairs and maintenance: say $85/mo/unit

Cap-ex: say $85/mo/unit

Vacancy: 5%, but the actual number is closer to 2%

Insurance: $35/mo/unit (actual number is closer to $25/mo/unit)

Property tax: say 1.2% for comparison purposes. It's a tad more.

My monthly expenses are about 38%. That's a 7.4 cap. We can borrow at 3.25-3.75% from our lenders here. So the spread is about 400 basis points. Even with 0.8% rule, our assets here still yield better than the 1% rule on those cheaper assets OOS. 

1% rule assets are reserved for folks in the inner circle and established closers. They don't make it to the market. ;)

Just want to share my 2 cents and best of luck with your real estate endeavors.