Frustration with 1% rule

[Damon Decker]

I live and invest in Denver, and finding a property here that meets the 1% rule just doesn’t happen. Where are you finding properties that meet this criteria?

[Jeff White]

@Damon Decker The problem with rules like 1% rule are that they create the illusion of deal or no deal just from one rule, and those rules really only apply to markets in the Midwest and South where you can buy houses for 100k and rent out for 1,000, but the appreciation won't be nearly as high as a place like Denver long-term most likely, and also, you are dealing with property management 2000 miles a way.  Also, you make money on appreciation, debt paydown, cash flow and tax benefits. To me, I'd rather invest in my backyard here in Denver, get a little less cash flow, but be close to my investments and get better than average appreciation in the next 10-20 years. 

The ways to achieve better than average returns in Denver metro in a few ways:

1) Find a single family in the 400-500k range with 5+ bedrooms and 2+ bathrooms, and rent by the room. You can easily get $700-$750 per room with shared bathrooms and $850-$900 per room for master rooms with bathrooms.  If you found a 5 bedroom house for 400k in a simple 1960-1970s ranch house, you would get:

4 x 700 = $2,800

1 x 850 = $850

TOTAL GROSS RENTS = $3,650

Not quite the 1% rule, but much better than renting out the whole place for $2,500 relying on only one or two sources of income, but it does require a bit more work dealing with tenant turnover and furnishing the common areas, etc. 

If you added one more bedroom to that house, you could increase your rents to $4,350 (another $700 per month for that room), and then you would be hitting that elusive 1% rule. 

2) Buy a house in Arvada with a basement apartment, and utilize Airbnb to achieve the maximum ROI, it is more work, but Arvada allows for up to 3 investment properties that can be on Airbnb.

3) Find a single family house with multifamily zoning with a separate entrance and living area in the 400-450k range and rent out each part of it.

4) Find condos/townhomes in east Aurora for 200-250k that are 3/2s that can easily be rented on Section 8 for 1,850. Again, not quite the 1% rule, but super close!

Besides the first item, all the other ways will get your close to the 1% percent rule. Denver is a tough market right now with the purchase prices, but it is still possible to cash flow here and make money.