Anywhere else the 1% Rule doesn't work out?

[Kevin Gerace]

So there must be other places like my town. The average (decent shape) 2 family home is selling from 250k-325k. And the average rent is $1100-$1300. These numbers don't work out for the 1% rule. Everything I've ever read on here, or heard on the podcast is that if you don't make at least 1% a month you will lose money. The only way I can see these landlords around me making money is if they have owned the property for years before the prices inflated.

The reason I've been thinking about this is because a 2 family a few down from mine has been lived in by a hoarder for the last 50 years, and no maintenance has been done to the property in this time. It literally looks like the Munsters house. He passed away a few weeks ago and i walked over to speak with the family who is here this week cleaning the house out. They are from Arizona, I'm in Connecticut. He voiced not wanting anything to do with the property, but when he asked me what I would pay for it, I said "in the 70's"... He almost just walked away from me. I couldn't get a hard number out of him, but he did mention a number around 140k. 

This seems outrageous to me. The entire house needs to be gutted, the entire exterior needs to be redone. The 2 car garage is cinder block, but the roof is caved in. Massive trees near the house. Plus the entire house is full. 3 floors of garbage. 

I've had my eye on this property for a long time, but I think it will need about 140k-160k to fix, do other people think my price in the 70's is low balling him?

I think if the units were nice I could rent each floor for $1200. ($2400 a month total) I want to buy in my town because it is nice, it's just so expensive here.

[Account Closed]

Kevin,

@David Faulkner is correct. Seems like you're on the right path. You just need a little fine tuning. I don't know if you have access to the MLS or Redfin.com or the equivalent. Study those markets. You will see a pattern between neighborhoods and the rent to property value ratio. Once you have a good understanding of these parameters, you will spot a good deal from a mile away. In the quest of doing your research, you may identify some investors who are getting some sweet deals that never hit the market. Wouldn't it be nice if you're in that circle? :>)

What's the ARV of the property after you renovate it? That would determine whether or not you're low-balling the guy. As David mentioned above, buying in expensive markets can be very profitable compared to cheap markets. Once you got the formula figured out, I promise you will look at expensive markets with a different set of eyes. :>)

Thanks for the mention David. Those 1% deals are doing good and on the verge of doing great. My partner and I got lucky this year. We just hope the luck will continue into 2016. The deals that I bought at the courthouse steps during the downturn are doing 1.4%-1.5% now. However, they're worth 2.5-3 times now so the rent to value is about 0.6%.  :<(