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The 1% rule is a guideline used by real estate investors to assess the potential profitability of a rental property. It suggests that the monthly rent should ideally be at least 1% of the total purchase price or acquisition cost of the property.For example, if a property costs $200,000 to purchase, the monthly rent should be around $2,000 (1% of $200,000) to meet the 1% rule.
Meeting or exceeding this guideline indicates that the property's rental income has the potential to cover expenses such as mortgage payments, property taxes, insurance, maintenance, and still provide a positive cash flow.
However, it's essential to note that the 1% rule is a simplified rule of thumb and may not always be applicable or suitable for every real estate market or investment scenario. Additionally, other factors such as location, property condition, vacancy rates, and financing terms should also be considered when evaluating the viability of a rental property investment. Investors often use multiple criteria and analysis methods to make informed decisions about real estate investments.
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