The One Percent Rule of Real Estate
Easy Math to Evaluate Rental Properties
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So you’re interested in investing in real estate rental properties.
Congratulations!
But the learning curve to evaluating and purchasing your first house is
STEEP.
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How do I find my first property? How do I figure out if it’ll make money? How do I even know what a good deal look like?
Never fear, enter…
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the
1% RULE.
The one percent rule is here to help you do the easy math on rental properties.
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What is the 1% Rule of Real Estate?
The 1% rule states the following:
In order to generate positive cash flow, the monthly rent of a property should be at least 1% of the all-in purchase price.
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You may have also heard of another investor term thrown around, the
Gross Rent Multiplier
.
Corollary: What is the Gross Rent Multiplier?
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The gross rent multiplier is the
purchase price of the property divided by the annual rental revenue.
This is basically just the inverse of the 1% rule.
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Well for that, we need to dive a little deeper into murky waters of back-of-the-envelope real estate calculations…
So why does the 1% rule of thumb work?
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