Tell the Naysayers 1% rule does exists

[Neerav Patel]

Investment Info:

Single-family residence buy & hold investment in Eagleville.

Purchase price: $139,000

This was our second foreclosure property. It had a standing water in basement hence was not selling.
It was a townhouse with full basement 2 bedroom, 1.5 bath and 1472 sqft.
Bank pushed closing dates at-least 7-8 times(took almost 4 months) and on one day all of the sudden they mentioned if we don't close it today, they are putting it back on market. We immediately ran from work and took half day of leave and finally closed that deal.

What made you interested in investing in this type of deal?

We have already seen power of BRRR investing via example of our own home, so we wanted to repeat that success. We already knew that area because we have put offer on some townhomes in same community.

How did you find this deal and how did you negotiate it?

Price was 153k , we negotiated 144k but selling agent was pain to deal with and all of the sudden they said no. After couple of days , they dropped to 143k( our gain but what a mismanagement). We put an offer and got it under contract with mortgage and inspection contingency.Even-though we hadn't purchased property yet , we needed mortgage. So with our money and sweat , we installed sump pump but bank refused to do mortgage since they saw signs of water damage.So we renegotiated to 139k

How did you finance this deal?

We tried our best to get bank finance but did not wanted to go to hard money route since we already had HELOC plus extra cost for hard money, so we used HELOC money that we have got from our primary home.

How did you add value to the deal?

Took care of basement water problem and finished it too. Because of bad roof, some studs were rotten, so had to change roof and those studs. Bathroom renovation, along with some other minor items and painting of home.

What was the outcome?

Rehab was roughly around 23k, we did many of work ourselves. Learned the hard way that some things are better left to expert.
We refinance property with HELOC and apprised for 210k and got our money back.
Currently we are renting out this place for $1650/month.

Lessons learned? Challenges?

So even-though people say 1% rule does not exists in our area, I will say try and try until you get results you want.
Main challenge was confusion and frustration from listing agent and not knowing enough about renovation and getting scared with problems which turned out to be very easy tasks.
Plus also leaned the hard way that some things are better left to experts. We did some plumbing work and that leaked multiple times , so had to call professional and angry tenants.

[Will Barnard]

Going just off the title of your post, I don’t think it is important if people think the 1% rule does or does not exist in any specific area and quite frankly, in many areas of the country, 1% rule equates to break even or potentially negative cash flow. I owned a few 1% rule properties in TX when I first started many years ago and none of them produced significant long term cash flow.

Meeting the 1% rule does NOT guarantee a good deal or cash flow, in fact, it’s not a rule at all, just a simple back of the napkin calculation which is more of a guideline than a rule and the name should be changed accordingly.

Congrats on getting into the deal and pushing forward, that places you ahead of most who talk about it but never do it. But you just closed and have no data to show it has been a good investment or not, so keeping that in mind, and dependent upon your specific strategy and goals, you may need to adjust your criteria for the next one or perhaps not. Time will tell the real story.