Rental Property Investment Guide
The 1% Rule
A quick screening tool: Monthly rent should be at least 1% of purchase price.
Example: $250,000 property should rent for $2,500+/month.
Note: This is a rough filter, not a full analysis. Many good deals don't meet this rule.
The 50% Rule
Estimate that 50% of rent goes to expenses (not including mortgage).
This accounts for vacancy, repairs, taxes, insurance, management, and CapEx.
Cash Flow vs Appreciation
- Cash flow markets: Midwest, South - Higher yields, lower appreciation
- Appreciation markets: Coasts, major metros - Lower yields, higher growth
- Balanced approach: Aim for positive cash flow with some appreciation potential
Expense Categories
- Vacancy: 5-10% of rent (1-2 months/year)
- Maintenance: 5-10% of rent for ongoing repairs
- CapEx: 5-10% of rent for roof, HVAC, appliances
- Property Management: 8-12% of rent
- Property Tax: Varies by location (0.5-2.5% of value)
- Insurance: $800-2,000/year for most SFRs
Target Returns
- Cash-on-cash: 8-12% minimum
- Cap rate: 5-8% for most markets
- Monthly cash flow: $200+ per door (after all expenses)