Looking for counties that meet the 1% rule

[Kathy Diamond]

Hi all,

I'm hoping the title is catchy enough: I'm looking for median home price to rent ratio by county to find markets that meet the 1% rule. Any pointers where I can find that?

Kathy

[Stuart Udis]

The 1% rule is one of the most flawed underwriting techniques anyone can rely on.  I've posted  this before but hope this helps dissuade you from relying on this technique:

Expenses disproportionately impact lower rent collecting properties. Take for instance an “A” located 1 +1 duplex where units rent for $2,000/m and compare the building to an identically designed “C” located 1+1 duplex in the same market where units rent for $1,200/m. Now assume each unit is occupied by 1 person. Common utilities paid by the landlord will be similar if not the same; standard services (extermination, changing filters, snow removal, fire safety inspections etc.) will cost the same.

Expenses will vary depending on the market. The cost of doing business varies from municipality to municipality. A $200,000 duplex might have identical rents in municipality “A” and municipality “B” but the property tax rates will vary, local regulations will dictate licensing requirements, labor rates will vary & the particular location will dictate insurance premiums since insurance carriers will weigh local replacement costs and whether the municipality is viewed as being a “plaintiff friendly” in arriving at insurance premiums.

Better situated assets will attract better tenants. While you shouldn’t categorize all tenants and it’s the landlords responsibility to properly screen, the tenants who reside in better situated housing and pay higher rents are more financially responsible meaning lower rate of rent loss and will generally take better care of the property which combined will result in less time allocated towards management functions if self-performed or more favorable management fee structures if 3rd party management companies are utilized (which ties back to #1, as well).