The Problem with the 1% Rule and When to Build vs. Buy Real Estate
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- Опубликовано: 4 авг 2024
- Episode #953
Could building houses make you more money than buying existing ones? When should someone use the 1% rule in real estate, and when does this metric point to a cash flow disaster? What’s the best way to get more capital or funding for future real estate deals: get a HELOC on your primary residence or look for investor-only DSCR loans? We’re pulling some of the top questions from the BiggerPockets Forums and giving our answers on today’s show!
Expert investors Dave Meyer, James Dainard, and Kathy Fettke from the BiggerPockets "On the Market" podcast are on today to answer YOUR real estate investing questions. First, we return to the age-old debate, “Does the 1% rule exist anymore?” With high home prices and lagging rent growth, this once foolproof metric could be an outdated calculation inexperienced real estate investors should avoid. Next, can you make more money building houses than flipping houses?
Are turnkey rentals the best “low headache” real estate investment? We’ll answer that and give our thoughts on when to use a HELOC (home equity line of credit) vs. a DSCR loan (debt service coverage ratio). Finally, for our out-of-state investors, we share the top metrics to look at BEFORE you invest in a new market.
Want to ask a real estate investing question? Post yours in the BiggerPockets Forums, and we might select it for our next show: www.biggerpockets.com/forums?...
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1% Rule In Real Estate: What It Is And How It Works:
www.biggerpockets.com/blog/1-...
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Is it Better to Build New or Renovate Existing Homes as an Investor?
www.biggerpockets.com/blog/bu...
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Connect with Dave and Our Panel of Expert Guests:
Dave Meyer: www.biggerpockets.com/users/d...
James Dainard: www.biggerpockets.com/users/j...
Kathy Fettke: www.biggerpockets.com/users/k...
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Show notes at: link.chtbl.com/BPRE
00:00 Intro
00:46 Is the 1% Rule Dead?
08:24 Building vs. Flipping Houses
14:30 Are Turnkey Rentals Worth It?
20:56 HELOCs vs. DSCR Loans
25:07 Local Market Metrics to Track
30:46 Ask Us Your Question!
My plan is to Reno the existing home, get that cash flow positive or break even and then build new on the other half of the lot. In full development.
I like how James is so specific. 🙏
New construction all the way! I am a big fan of getting brand new homes for 20-25% off.
Please somebody explain to James that it is PRO forma not PER forma!!!
Thank you for answering these questions!
This was helpful.
No, no, and more no. You don't lower your standards just to buy something.
Plenty In Philadelphia,straight from mls,
But bad neighborhoods and tenant friendly laws,not buying there
I first heard the 1% rule was in a college course in 1973. It's the only thing that l remember from that class. Still using it😊
Remember for the 1% rule it's not actually the purchase price, it is the after repair cost. Must include any rehab into the calculation.
In Uganda 1% is everywhere sometimes u can even get 1.5% but the problem is interest rates as a beginner I don't know how those in my market play the game coz our interest rates are 18% on a mortgage
Imagine 18% on a 20 year mortgage or 21% on a normal loan 😢
New construction homes without HOA. Please cover this subject.
Can you go over tax strategies for starting a realestate business and aquiring business loans with projected or stayed incomes. I want to know all of the ways to start a brand new business and use OTM/the bank for the startup cost, and could i use the start up cash for mentorships/schooling ? I guess this os more of a tax and business question then anything else. It seems like their are "stated income" loans for new business coming out right now, and if i can use their money imstead of my own that would be great
Love this! I think 1% exists in emerging/tertiary markets IF you are willing to put in the work to find deals personally or work relationships with local wholesalers. I think most people think these deals are going to come to them. That's no longer the case.
My ho.e is on two lots 100% paid for I want to build on my second lot. How do I go about it. It should be cheaper since I already have the land. Fl
To get financed you need a building plan and a permit.
Cash out refinance! Mortgage debt is the cheapest debt you’re going to find. HELOC is another option but rates are usually higher and have variable rates. Happy to help if you are located in va,md,dc,wv, or tn
my market is usually 0.5% to price... crazy deals in Texas but i guess more property tax burden
1% rule is the equivalent t of a 12% cap rate, is it not? Particularly in places where population is growing and the market is competitive it’s pretty hard to get that.
Not equivalent. Cap rate is based on net operating income whereas 1% rule is based on gross rent.
@@trevorlybbert3640They are very related just a slight different metric.
In 2000, when interest rates were similar, I was taught to multiply by 60 (1.666% rule). It went down to 1% to account for lower mortgage costs. It needs to go back at these higher rates.
All u ROOKIES forgot it WAS THE TWO PERCENT RULe 1%lol 😂😂
LOL!!!
I am currently investing in new construction multifamily myself. Got a program where I was able to put minimal investment down, get 100% financing and 100% own these buildings.
Wow! Can you help me with the process? That sounds like a great deal.
I really enjoyed this podcast. I would love to hear your opinions on investors who pay cash for properties. Investors with unlimited funds. A list of types of properties in priority. Thanks
That rule was not created 10 years ago. Investors have been using that for well over 30 years
These people are young and to them no one existed before they did.
Wait… are you guys acquiring properties at a 1% CoC rate?
I had to laugh when she talked about doing new construction in Oakland California. Her biggest problem was that it’s Oakland. With the Looney Tunes people that get elected in the bay area you can’t expect any kind of business to go well.😅
100% and I’ll never do it again!
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