Investor · Ascutney, VT · Member since 2015 · 291 posts · 20 votes
how does the 1% rule or the 2% rule work?
is it just the first step to analyzing a deal?
property is worth 100k and rental income is 1k. does that mean that two units are producing $500 each? or that they produce 700 each but $400 in expenses
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
Generally, the 1% GUIDELINE means that the gross rental income is 1% of your purchase price. So, spend 150K and gross $1500. These guidelines are only that. You need a complete picture of expenses to determine your NOI. I always consider the 1% guideline where I live but that is just a cursory thought. I have to know exact numbers; taxes, insurance, maintenance, CapEx, etc to have an idea how much a property will yield. You may not be able to have exact numbers but you can make educated guesses. An older property with an A/C that is 20 years old will certainly need one soon. That will result in a higher cost basis. If you have a new property with few unexpected major expenses, your CapEx estimates will be much lower.