Thoughts About The 1%-2% ?

[Justin Sheppard]

Hey everyone,

I'm slowly but surely digesting lots of the videos and podcasts provided by the BP team. One thing I have found interesting is the 1%-2% "rule", which I will acknowledge the BP team has made clear is not necessarily something that should be blindly followed. However, for curiosity, I've been applying it to houses in my home city of Regina, Saskatchewan (Canada), as well as to some farmland properties.

My first question is: is anyone aware of any markets where there are good investment opportunities that are meeting the 1% to 2% rule?

I've put together a few examples below. I'm curious to see if people feel like the rent to price ratio in my market is too high? Or would some of you still consider these good investments?

SCENARIO 1:

2017 built 1,700 sq ft two storey home in a nice neighborhood. Close to schools, shopping, etc. Four beds, 3.5 baths, nicely landscaped.

Price: $450,000.00 CAD

Gross Monthly Rent: $2,200.00 to $2,700.00

Percentage Range: 0.488% to 0.6%

THOUGHTS: This isn't even coming close to 1%. However, the neighborhood and rental price range should theoretically attract good tenants. Also, the cap-ex should be lower overall as it is a new and quality build. This scenario produces negative cash flow of around $100 per month out of my pocket.

SCENARIO 2: 

160 acres of grain producing farmland in Saskatchewan. Good location in a good farming community, within 1 hour drive of the capital city of Regina, SK.

Price: $175,000.00 CAD

Gross Annual & Monthly Rent:$55 per acre X 150 cultivated acres =  $8,250.00 per year, $688.00 per month.

Percentage: 0.4%

THOUGHTS: Again, this isn't coming close to the 1%. However, farmland is nice because the asset doesn't depreciate (as long as you have a good tenant who properly farms the land, and you have not purchased any buildings on the land). Also, management is very hands off, as tenant pays half in the Spring and half in the Fall. This scenario produces a small amount of negative cashflow, around $10 per month out of my pocket.

I'm curious to hear your thoughts on these scenarios, and whether or not you apply the 1% or 2% rule when you are picking properties to invest in? What other things do you consider when picking a property?

Thanks all, and I hope you've all enjoyed your weekend!

Justin