CandleFocus Glossary Editor
The One Percent Rule is an important tool used to judge the financial viability of an investment property. It is commonly used by real estate investors to decide whether or not a particular property is worth investing in. According to the rule, a rental property should generate at least 1% of its purchase price per month in rental income. In simpler terms, this means that the monthly rent charged to a tenant should be equal to or greater than the investor's mortgage payment to ensure that they at least break even on the property.
Using the One Percent Rule, an investor is able to determine the minimum amount of rent they should charge for a property before making a purchase. To do this, the investor first must know the purchase price of the property and any necessary repairs or improvements that must be made. The total cost of the property minus repairs should then be multiplied by 1%. This figure gives the investor a base level of monthly rent that will allow them to gain a profit or, at the very least, break even on the property.
Ideally, an investor should seek a mortgage loan with monthly payments of less than the 1% figure determined by the One Percent Rule. This will ensure a greater return on their investment, as the amount of rent they receive in excess of their mortgage will be pure profit. Furthermore, a lower mortgage payment makes it easier to cover expenses such as taxes, insurance, repairs and other costs associated with owning a rental property. Therefore, the One Percent Rule not only provides guidance for setting rental prices, but also advises potential investors on what mortgage loan offers are preferable.
Real estate investment is a risky endeavor, which is why it is important to be aware of strategies such as the One Percent Rule. Understanding the rule means that investors can make educated decisions about which properties are worth their time, effort, and money. It may not guarantee that an investment will be successful, but it can increase the odds in favor of investors.
Using the One Percent Rule, an investor is able to determine the minimum amount of rent they should charge for a property before making a purchase. To do this, the investor first must know the purchase price of the property and any necessary repairs or improvements that must be made. The total cost of the property minus repairs should then be multiplied by 1%. This figure gives the investor a base level of monthly rent that will allow them to gain a profit or, at the very least, break even on the property.
Ideally, an investor should seek a mortgage loan with monthly payments of less than the 1% figure determined by the One Percent Rule. This will ensure a greater return on their investment, as the amount of rent they receive in excess of their mortgage will be pure profit. Furthermore, a lower mortgage payment makes it easier to cover expenses such as taxes, insurance, repairs and other costs associated with owning a rental property. Therefore, the One Percent Rule not only provides guidance for setting rental prices, but also advises potential investors on what mortgage loan offers are preferable.
Real estate investment is a risky endeavor, which is why it is important to be aware of strategies such as the One Percent Rule. Understanding the rule means that investors can make educated decisions about which properties are worth their time, effort, and money. It may not guarantee that an investment will be successful, but it can increase the odds in favor of investors.