The 1% Rule in Real Estate Investing

HI! My name is Michael Zubretsky. I am the owner of CT Cash Homes and have some useful tips for you if you are thinking about investing in Real Estate.

What is the 1% Rule in Investing?

The 1% Rule can be useful for evaluating Real Estate Investments. With some quick and easy calculations, Investors can easily screen rental properties to determine the Cash Flow Potential of a particular property.

How Does the 1% Rule in Investing Work?

The 1% rule in investing is used to determine if the monthly rent earned from an investment property will exceed the property’s monthly mortgage payment.

The 1% rule can be demonstrated as so:

MONTHLY RENTAL INCOME   >    ONE PERCENT OF THE PURCHASE PRICE 

Examples of the 1% Rule in Investing

To help you better understand the 1% rule in investing, here is an example.

A property that costs $200,000 should have rental income of at least $2,000 per month.1% x $200,000 = $2,000 per month Rental Income

Conversely  - If you know that the monthly rent on a property is $2,000 then you can quickly calculate the Maximum Purchase Price.

100 x Monthly Rent = Max Purchase Price

100 x $2,000 = $200,000

Using this quick calculation with the 1% rule, you have created an instant guideline where you now know that you can not pay more than $200,000 on this investment property without investigating other fundamental features during your due diligence.

The One Percent Rule in Real Estate Investing can be a helpful tool when you are evaluating cash flow potential, but it is only the first step in determining whether a property is a good investment.

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