There are many ways to evaluate a real estate deal, but one common method utilized by investors is the 1% Rule. This rule of thumb helps investors determine if their investment will be safe and profitable.
In real estate investing, the 1% Rule helps investors determine if a rental property will produce cash flow. Basically, when you purchase a piece of real estate, it should cash flow up to 1% of the purchase price every single month.
To use round numbers, let’s say you purchased a real estate investment for $100k. Following the 1% Rule, that property would need to produce $1000 in rental income every month. This is a simple tactic used to ensure that your expenses will be covered.
Personally, I like to go higher than 1%. My main focus in real estate is cash flow. However, 1% works for many investors that I know. It’s important to remember that the 1% rule is simply a jumping off point; it is not the end all, be all!
If you’re analyzing a property, you’ll want to be more thorough than just evaluating the 1% Rule. You’ll also want to take a good look at all the numbers involved, including ROI and cash flow. Here's my go-to ROI formula!