[jedberg]

What is the 1% rule? As a landlord I usually assume 0.5% per year.

So a million dollar condo would be 50K a year, or about $4200/mo, which is exactly in line with current nyc rents.

[sidlls]

The rule is a residential rental is only worth the risk or has a good return if the property can be rented at about 1% of the value per month or more (e.g. a $100k home should rent for $1k/mo). I generally try to get an annual cap rate of 9% or more (1%/mo less expenses).

[jedberg]

Wow. That rule must only apply in smaller cities. I can't think of a single residential property in the Bay Area that would even come close to that.

On the other hand, all the properties I manage do 0.5% per year and have all been profitable, not even including the appreciation on the property.

[sidlls]

Not smaller, just different areas. It's fairly easy to achieve that in the Midwest and larger urban areas in the southeast. I typically got ~0.8%/mo or more.

I'd go so far as to say that if single family residential is your strategy it's better to take the multi-million dollar investment in a single home in the Bay and make one in 5-7 (or more) homes elsewhere. The appreciation is drastically lower but the cap rates are amazing (much higher cash flow) and the risk is spread out. Of course, with that kind of investment it's better to go multi-family or commercial anyway.