1% Rule Properties are not Cashflowing

[Shilpa Matlock]

Hi All, I'm running my numbers and could use any tips. Is it possible to find properties that  meet the 1% rule, but are still not cashflowing? I'm looking at deals (2-4 units), many of which seem to meet the 1% rule or better, but when I plug in my expenses, it has negative cashflow. Am I just over-estimating my expenses, or is this normal? 

For example, $104,600 purchase price, 20% down (30 yr amort/6% int), $3,500 closing costs. GSI 16,200, actual rent less 8% est. vacancy = 14,904. So this exceeds the 1% rule, since we're at 1.29%. PM 10%, prop tax 2,200 (I confirmed), utilities 1,200, landscaping 1,000, insr 628, capex (6%) 894, maint (10%) 1,490. This is an older midwestern property, so I think maint and capex should be higher.

Am I over/underestimating expenses? Or missing any expenses? Any advice would be greatly appreciated.

Thanks!
Shilpa

[Jeff Copeland]

The 1% rule is just a quick screening tool that lets you determine whether a property is even worth doing a deeper analysis on. It does not guarantee that the property will cash flow or be a great investment. 

Every property will have a different profile in terms of income and expenses once you start digging deeper. 

In other words, if you are looking at 50 properties for sale in your target market, you can quickly eliminate the 40 that do not even meet the 1% rule, and be more efficient by only doing a deeper analysis of the 10 that do. 

Of those 10, perhaps 2 or 3 will be worth actually considering.