Hi
Can anyone tell me if Steve’s one percent rule covers all the costs associated in buying and renting a property?
Cheers
Janine
Hi Janine.
I have been reading Steve's book and looking at that too. I am thinking that it covers the basics with insurance and rates. You can never know for sure all expenses because if a hot water system needs replacing or major works are required unexpectedly, then I guess it can throw calculations out.
I am just using the 1% rule to rule out the majority of housing on the market. Once I find one that passes, I try get information then on rental income it can achieve, rates etc. From that I then do as thorough inspection of the house with the Property inspection template on this site.
That is what i have been doing so far, but i'd be interested to see what experienced investors on this site have to say.
Wishing you luck!
Michelle.
Hi Michelle,
I’ve tried using the 1 percent rule on properties listed on real-estate.com. The properties listed for sale never actually display the rent that they could go for, in which case I look for similar properties in the area and try to estimate the amount that I could rent it out for. Is this how you are using the rule too? I can’t seem to find any properties that have an ROI above 5%…i also don't really fully understand the 1 percent rule, and for me it doesn't seem to take into account all expenses…
Hi Janine….
The areas I originally wanted to buy in didn't meet the 1% rule either. I had to go looking in other areas that were cheaper but the rental still meets the costs. Still looking for our first IP, so by no means an expert at all.
A couple that we have seriously done DD on that were advertised on RE.com or similar, I rang independent property managers from other companies to see what rental i could get for it. This killed 2 birds with 1 stone because we will be needing a PM anyway. Some already had tennants and the agent could tell me what they were paying when contacted about property.
I think if a property does meet the 1% rule, we then need to look into all other costs and do our sums of income vs expenses from there while completing DD… I hear what you are saying tho Mattsta.
M
What's the 1% rule?
I believe the 1% rule is a guideline Steve formulated to help find positive cashflow properties
It is based on the interest you can borrow at + 1% to account for other expenses
E.g. If you can borrow at 7% interest, the 1% rule states that you should only be looking at properties yielding or with the potential of 8% or above
OK
Kong is right;
I've downloaded a cost to hold calculator from here:http://passgo.com.au/investment-property-analysis-tool.html
I've practiced with different numbers and 1% rule is correct to make the property neutral.
If the interest rate is 7% , you will require ~8% rent to make it neutral.Also on another one of this magazines the investor was saying that he is hunting for 7% properties, then working on discount to make it ~9%
Thanks. I guess it's a quick way to see if the figures work but interest rates change so your rate now means nothing unless you have a very long fixed loan.
I like my numbers a bit more accurate than that. Before I buy I want to know all outgoings, reno costs, rent etc so I know the cash flow and projected cashflow if it's not already CF+
Hi guys,
I have read steves book in question its designed as a very rough tool to sort the wheat from the chaff, I think the idea was when you find one that meets the 1% rule you negotiate, get the vendor to move down on price then look at ways to increase the rent so you end up with a better rental yield on top of the 1% rule, me personally I would want at least 2% above the current interest rate Im getting (6.1%) on an interest only loan with a LVR 80% to 90%,
I agree with catalyst before I began negotiations I would have all the out goings, reno costs on a spreadsheet
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