Sorta Newbie with a Question about the 1% Rule

[Collin Fridley]

Hi everyone,

My wife and I are venturing into new territory as far as real estate investing goes. We currently own two single family homes that have worked well as rental properties. We've decided to change trajectories and invest in multi-family properties. 

Currently we are looking into a four unit property that is fully rented and in a nice location. However there is a catch... the current tenants pay WAY less than the surrounding area. Rentometer.com says that in this area the average rent for a 2BR/1BA apartment is $830/month, while these tenants are paying $430/month for their 2BR/1BA apartments! Also, this property was built in the 1970's and there has been zero updates since it was built. When I looked at it the other day it was like a time capsule (Shag carpet and all). We estimate that updating everything it would cost in the neighborhood of $130,000. 

So my question to everyone here is if you were to apply the 1% rule to determine a rough number for what you'd be willing to pay, would you base it around the current price that the tenants are paying or would you apply it to what you think you can make ($830/month/unit) while also taking into consideration the $130k in updates?

Thanks for the input!