The 1% Rule in Real Estate Investing
Updated: Jun 27, 2020
Investing in real estate has many numbers and calculations involved when analyzing a deal. Some calculations include the cap rate, NOI, gross rent multiplier, and gross income but using the 1% rule can make analyzing a deal much easier.
The 1% rule is when the monthly rental income generated from the property is equal to 1% of the purchase price. For example, a four unit property that rents for $1250 per unit would bring in $5000 rental income per month. If the property is purchased for $500,000 that would mean the monthly rental income equals 1% of the purchase price ($5000/$500,000=.01 or 1%).
If there is a rental property in the 1% rule then it would be considered a good deal in the Portland, OR area. This rule is used to analyze the property, but understanding the average monthly rental income in your area is important when looking at deals. Be sure to talk to your local broker about what is common for monthly rental income percentages. In Portland and the surrounding area most rental properties that are publicly listed are between .5%-.7% monthly rental income. Finding an investing property that has 1% monthly rental income is considered a very good deal in the Portland area.
This quick calculation helps you to analyze more deals in a shorter amount of time. If the property you are analyzing has a solid monthly income to purchase price ratio, it is worth diving deeper into the deal. After finding the monthly income ratio make sure to consider all expenses associated with the property to make sure the deal “pencils out” for your strategy.
If you are considering investing in a rental property in Oregon call me to find the right deal for you.
Trent J. Werner
Licensed Oregon Real Estate Broker
Read more from Trent Werner here.