Renting Property in Pittsboro NC and the 1% Rule in 2019

Real Estate Manager Eric Andrews explains what the 1% rule is, why investors like it and if it attainable going in to 2019 in Pittsboro North Carolina.

Speaker 1:           What is the One Percent rule when it comes to renting rentals?

Speaker 2:           One Percent rule is real tough right now. We could do it five years ago, but it’s gotten a little tougher. One Percent rule is something that excites us in the real estate industry. If you buy something for X amount of dollars, can you rent it for 1% of the value? So, if you buy something for a hundred thousand, can you rent it for a thousand? If you buy something for 200,000, can you rent it for 2,000? A lot of them we can’t do right now. But the reason why that is such a crucial, crucial number is because the gold standard for investment is that 10 to 12 year recapture. If you can get your money back in 10 to 12 years, then you have done a phenomenal… A really good purchase. And, I’ve had clients that were able to recapture in six, seven or eight years. And that’s really exciting.

But 10 is really, really tough right now. On average, if you bought a house for 200,000 right now, I could probably rent it for 1,400 or 1,500 a month. So that’s not 2000 and the margins are a little bit better if you buy something a little less expensive. If you buy something for a hundred thousand, I can probably rent it for like eight or 900 right now. So those are getting close to the One Percent rule. But the One Percent rule basically is, can I rent it for 1% of how much I’m buying it for?

Speaker 1:           Given the area’s appreciation right now. What if you bought a $300,000 house to rent it out for 1,500 bucks? I guess that would be 2%, or half a percent.

Speaker 2:           That’s half a percent. What’s interesting, we have some rentals in the Chapel Ridge market, we have some rentals in the Chatham Forest and they’re not anywhere close to 1%. You get a seven, $800,000 house in Chapel Ridge it’s probably renting for like 2,500 to 3,000 a month. So, there’s just a maximum. Once you start getting up to those prices where someone’s able to pay two or three or 4,000 a month in rent, they’re probably going to buy.

But you bring up a good point, especially when we do commercial. Commercial is even harder to get the 1%, but if you buy something… I just bought something for $335,000, 335, and I just rented it for 2,000 a month. Okay? So, Eric really, you think you’d be able to do better than that. But it was in downtown Pittsboro and I’m bullish on downtown Pittsboro.

I think downtown is going to really appreciate. I looked at the appreciation models at the same time. I was barely getting my nut covered. I was barely getting my payment covered at 2,000 a month. With taxes and insurance, I was probably losing as far as my monthly payment was concerned. But I think I could sell that thing for 350 and I just bought it a few months ago. I think five years from now, it’s going to be worse between 450 and 500,000. So you have to look at both of those things, but appreciation is crucial.