All Forum Posts by: Amber Lister

 Yes, because people who are buying a house to live in don't care about the purchase:rent ratio.  So you can find a $800k house that is similar to homes that sold for $900k.  Doesn't mean it's going to make a good rental income property.

Even way back when I started (14 years ago), buying something that was no more than 100x rent was hard.  I bought a few $200k condos in a nice area of town (Montrose) that rented for about $2000/month.  But that became hard.  So I found an 8 unit that I bought for $440k that rented for $4,400/month (total).

You can still find "1%" deals.  Last year I bought a bunch of patio homes for $245k each.  They don't quite rent for $2.45k/month but they avg about $2,200/month.  So close enough. 

Gotta move to multi.  Or just accept a lower return and bet that inflation and rent growth will save you long term. 

@Amber Lister: I was trying to find this great CBRE graph that basically showed real estate values are far outpacing rent growth, hence the 3% in financial crisis becoming the 2%, becoming the 1%, and now in most stable submarkets of major metros, you are looking at 0.5-0.75% rule.  The point being, values nation wide are growing faster than rents, and have been for a long time.  As such, everyone is really buying for appreciation, whether or not they realize it yet.

So on your refi, you need to be talking to banks now and learning how they will underwrite the loan. For SFR and small multi's most will have a generic equation to calculate NOI and therefore DSCR, which is what you are concerned about with your 1% piece and not being able to refi out your proceeds.

Thanks for asking me that question.  It made me go back and check my numbers.  I actually have one property that meets the 1% rule.

Here are 5 of my rentals

You can't have it all! If your goal is to scale and have as many properties as possible cash flow probably isn't too important to you. As long as it breaks even with the mortgage you should be okay. If cash flow is really desired then I would consider airbnb 

Hey Amber! I agree with Craig and Taylor that the 1% rule is definitely more a guideline than a requirement. I have tons of investors that have come off the 1% rule slightly in the last 6 months, with prices rising along with interest rates. Keep in mind, for higher class properties (B and above), investors aren't as much expecting the higher cash flow, but more so the long-term appreciation, so those properties often come in under the 1% rule. 

That said, we're still seeing BRRRR deals come through at the 1% rule or above in some of our markets like Birmingham, Detroit, Columbus, and Memphis. These markets tend to have lower entry points and great value-add opportunities, supported by solid rental comps. Not sure if remote investing is part of your strategy yet, but definitely recommend getting a team together if you plan on investing outside of Houston.

Hello Amber

The 1% rule is pretty general rule and I wouldn't base an investment decision off of that. I have 6 cash flowing rentals and none of them meet the 1% rule. I think a better formula to base your decision on is cash on cash return. For example, let's say you buy a $100,000 house that you put $20,000 out of pocket into it and your cash flowing $200 per month. That's $2,400 per year divided by your $20,000 cash out, equals a 12% return. Are you ok with that return % on your money? That's what you need to ask yourself. Ideally, with the BRRRR method, you have no out of pocket money in the deal after refi and you earn infinite returns.

You also need to calculate what the DSCR (debt service coverage ratio) if you're going to refi a property. This is calculated by taking your monthly rent and dividing it by your monthly expenses (mortgage, taxes, insurance, utilities, other). Most banks are looking for a DSCR of at least 1.2.

I'm sure BP has a rental calculator or cash flow calculator on the website.  You should take a look for one.  

Good luck and feel free to run a deal by me if you'd like.  Just leave off the address.  

The 1% rule isn't really a hard and fast rule, it's just a rule of thumb that helps with first-pass analysis. Underwriting your deals should go deeper than the 1% rule. There are calculators out there which will help you dig deeper into projecting cash flows, like the one BP offers, or you can build your own.