1% Rule

[Matt Kitto]

Hi All, I'm very excited to get more involved in the BiggerPockets community! I currently own a condo and rent out a room but am looking to move into a duplex. As I'm doing my research I find it very hard to find properties that would meet the one percent rule. I live in Portland, Oregon, and multi-family properties that don't require a ton of work are at least 400k. I judge an investment based on the expected return of the initial investment. For example, putting 80k into a property (we'll say the house is purchased at $375k and the rest of the money is used for fees and updates) that can net $1,000 a month seems like an excellent return even if you aren't meeting the one percent rule and getting $3,750/mo in rent. The $1,000 a month gives a 15% return annually on the 80k which, in my mind, is tough to beat. I have a significant nest egg already set aside for any issues that come up with the property. Is my thinking flawed? Do most investors here truly meet the one percent rule? Thanks so much!

[Trevor Emmett]

Hello Matt,

              I am also in the Portland Market and in my opinion we are an overpriced market set for a correction in the next 1-3years.  By no means do I think it will be anything like the last crash, but I am finding it incredibly hard to find anything that hits the 1% rule or comes close.  I am currently stockpiling cash, lowering my liabilities and being patient. The Portland metro area saw a 12% increase in home prices from august 2015 to august 2016, August 2014-August  2015 we saw a 9.4% increase and 2013-2014 we saw an increase of 7%.  (all information taken from S&P CORELOGIC CASE-SHILLER HOME PRICE INDICES and calculated by Trevor Emmett).  

It is normally believed that 4% a year is a healthy growth rate, the average of 2013-2016 is 9.46%.  Also, we are currently at 2 months of inventory, which by all means is a sellers market.  Granted, I cannot predict the future and no matter what the market is doing: a good investment is a good investment (I just have not run across any as of late.)  Make sure you stick to your guns, have a plan and be patient!  and remember Warren Buffett's first two rules of investing :  

1.) do not lose money.

2.) DO NOT LOSE MONEY!

 I hope that my two cents helped and either way best of luck!