Does the 1% rule really work when a property is financed?

[Benigno Cunanan]

Does an exact 1% rule property really work when your are financing the property? I can’t seem to make it cash flow when I add in cap ex, repairs, prop management and vacancies. Am I doing it wrong? All seem to just break even or if anything cash flow $20 a month. I’m starting to feel like the 1% rule is only for all cash properties

[Russell Brazil]

Originally posted by @Matt Schelberg:

As @Russell Brazil said, the price point is the main factor in this.  So when people say "it depends" it is because maintenance and capex are fixed costs (for the most part). Replacing a water heater in a townhouse costs the same in a nice neighborhood as it does in a crappy neighborhood.  So as a percentage of gross rents, the maintenance cost for Russell's $400k house is a lower percentage than my $50k house in Baltimore City.

In a very, very bad neighborhood with low rents it would be possible for even a "2% rule" rental to lose money.  The rent might not be enough to cover maintenance and capex and the house would either waste away or operate at a loss.

 To piggy back on Matts thinking here....I find in cheaper rentals people with little experience generally drastically under estimate their expenses and on more expensive ones people drastically over estimate their expenses. 

Its always helpful to translate percentages into dollar values to see if they make sense. I had someone tell me recently that the often quoted 50% rule applies to all rentals including my own. My rents are in the $3k range. If I were spending 50% of that a year on expenses that would be crazy. Thats $18k. That would be like getting a new roof, hvac and water heater every single year on one of my properties, and still having money left over.