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Updated about 4 years ago on . Most recent reply

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Rory Kelleher
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Is the 1% rule a "must have" for a smart multifamily investment?

Rory Kelleher
Posted

Hi All,

First time posting, and really, new to RE investing. 

Is the 1% rule a "must have" for a smart multifamily investment?

Considering a multifamily investment (2 Units, 1/1 down, 2/1 Up) listed for $600k in a "B" location. Conservatively, expect property can rent for 3800/m.  Based off the 1% rule, this property falls well below at .63% which based of the fundamentals of the 1% rule says this property will never be cash flow positive. 

But when i do my own analysis, the property seems to make sense, clearing $745/m NOI. (analysis below)

I guess my question is, should I really be looking for "better" deals?  My goal is not necessarily cash-flow, but rather building wealth over time.  Cash flow obviously helps though. 

Any thoughts or feedback is welcome.  Just starting out in this and looking to learn (and not make a bad deal as my first :))

Upfront Cash Investment$161,979
Dist. Cash Flow Per Year$8,944
Dist. Cash Flow Per Month$745
Dist. Cash Flow Per Unit / Month$373
Cash-on-Cash Return5.5%
5-Year IRR (not adjusted for taxes)17.4%

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Replied

I also didn't hit the 1% rule, but one side is able to cover the mortgage and property taxes. That works for me and my goals!

In my little experience, you'll know when you find a good deal. Research other deals and you begin to pick up on the average return in specific areas. Good luck!

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