The 1% Rule in Multifamily Real Estate (2024)

The 1% rule is a rule of thumb that real estate investors use to quickly assess the financial viability of a multifamily investment property. It states that the monthly rent from a property should be equal to or greater than 1% of its purchase price.

For example, if a property costs $100,000, the monthly rent should be at least $1,000. This rule of thumb is based on the idea that a property that generates at least 1% of its purchase price in monthly rent is likely to be cash flow positive.

Of course, the 1% rule is just a rule of thumb and there are other factors to consider when evaluating an investment property, such as the property's location, condition, and expenses. However, it can be a helpful starting point for investors who are looking for multifamily properties that are likely to generate positive cash flow.

Here are some of the pros and cons of using the 1% rule:

Pros:

• The 1% rule is simple to calculate and understand.
• It can be a quick way to screen out properties that are unlikely to be cash flow positive.
• It can be a useful tool for comparing different investment properties.

Cons:

• The 1% rule does not take into account all of the factors that affect a property's cash flow, such as expenses and vacancy rates.
• The 1% rule may not be accurate in all markets.
• The 1% rule is a static rule and does not account for changes in market conditions.

Overall, the 1% rule is a useful tool for real estate investors, but it should not be used as the sole factor in making investment decisions. Investors should also consider other factors, such as the property's location, condition, and expenses, when evaluating an investment property.

If you are interested in learning more about the 1% rule or multifamily real estate investing, I encourage you to do some further research.

I hope this post was helpful. Thank you for reading!