Real Estate Rules

Let’s start with the 1% rule. This rule is a great way to eliminate a property without spending too much time analyzing. I use this for a very basic, preliminary check on a property I am considering as a buy-and-hold in order to decide if it’s something I want to pursue. This rule states that the monthly rent needs to be 1% of the overall purchase price. So, if you’re buying a property for $100,000, your monthly rent needs to be $1,000 a month. It’s a great way to briefly look at a property, and see if it is worth pursuing. 

If it doesn’t meet the 1% rule, I typically throw it out unless I think there’s another reason to pursue that property (an appreciation play, or value-add opportunity, for example). The rental rate you used should be based on the market rent. Do not use the current rental rate if it’s low, because it won’t show you the actual value of the property. Be conservative here, though. 

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