3 ms·

So rent would be 12% per annum? Meaning if I pay 1k per month, the place is worth 120K? Enjoy finding that in a place that isn't shit-tastic. I have heard 7%

• ww520 15y ago
  Good deals of course are not plentiful. The 1% is a high threshold filter to recognize the few good deals right the way. Rule of the thumb is a rough guess, gut feeling kind of guess. For quick guess without detail analysis, you want to build lots of cushion into the decision. The 1% will "most likely make money" because it has lots of cushion built in. You can do more detail analysis with CAP/IRR/interest rate for more marginal deals. 7% annual GRM has too little margin IMO. Assuming operating cost (expenses+taxes) is 40% of gross, that gives you about 4.2% CAP rate. You are making a tiny profit after paying a 4% mortgage. Any down turn at rent, increase at expenses, or vacancy would bleed it into red.