When evaluating a rental property, the 1% rule is a great rule of thumb to help you identify if a property is worth investing in. Let’s take a closer look at this analysis method and how you can use the 1% rule with rent data from Rentometer to quickly analyze rental properties.
The 1% Rule
In real estate, the 1% rule is a quick way to determine if a property will meet your investment goals. For a property to be considered a good investment, The rule states that for a property to be considered a good investment, its monthly rental income must be at least 1% of the purchase price.
For example, let’s say you’re considering purchasing a duplex that has a listing price of $300,000. Following the 1% rule, the monthly rental income generated from both units must be at least $3,000 total (or $1,500 per unit of the duplex).
It’s important to keep in mind that this method of analyzing deals is only a rule of thumb. It’s a good starting point when quickly trying to evaluate a property. It’s important, however, to consider other factors when determining whether or not to move forward with investing in a rental property.
Using the 1% Rule with Rentometer
Rentometer is a great tool to use as a starting point in your research process. By instantly providing key rent metrics with our QuickView reports, you’re able to quickly evaluate current market rents and save time analyzing deals. Let’s walk through an example of using the 1% rule to analyze a property quickly with Rentometer.
Let’s say you’re interested in investing in the East Price Hill neighborhood of Cincinnati, Ohio. Your agent just sent you two listings each for 3 bedroom, 2 bathroom homes.
One of the houses is listed for $130,000 and the other is listed for $145,000. You go to Rentometer and run a QuickView report to check out the market rent in this particular neighborhood. The average rent price is $1,365, also shown below:
Using the 1% rule, you determine that the property listed for $130,000 is a better deal because the expected monthly rental income exceeds 1% of the purchase price, meaning it meets the 1% rule.
Keep in mind…
It’s important to remember that the 1% rule is one of the many formulas used to analyze rental properties. While it serves as a quick way to sift through potential investments, you should take other factors into consideration before making a final decision on an investment property.
Having access to reliable rent data allows you to filter out properties that don’t fit your investment criteria so you can spend more time analyzing the ones that do. Using Rentometer data to apply the 1% rule to potential investments is a great way to identify properties worth looking further into for your investment portfolio.
This article was written by the Rentometer Content Team. The Rentometer Blog features fresh takes and insights on rental housing topics, services, and technology.