What is the 1% rule in brrrr? Investing in real estate is a great way to earn passive income and accumulate wealth. One popular method of real estate investing is the BRRRR method. BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. This method allows investors to purchase properties, renovate them, rent them out, refinance them, and repeat the process. However, there is a specific rule that some investors follow in order to make the most out of their investments: the 1% rule. In this article, we will discuss what the 1% rule is in BRRRR, why it is important, and how to apply it.
What is the 1% Rule in BRRRR?
The 1% rule in BRRRR is a guideline that states the monthly rent of a property should be equal to or greater than 1% of the total purchase price and renovation costs. For example, if an investor purchases a property for $100,000 and spends $50,000 on renovations, the total cost of the property would be $150,000. According to the 1% rule, the monthly rent for this property should be $1,500 or more.
Why is the 1% Rule Important?
The 1% rule is important because it helps investors determine whether a property will generate enough income to cover expenses and provide positive cash flow. Positive cash flow is essential for real estate investors because it allows them to pay off their mortgage, cover maintenance and repair costs, and make a profit. Without positive cash flow, investors may have to dip into their own pockets to cover expenses, which can be detrimental to their finances.
The 1% rule also helps investors identify properties that are worth investing in. If a property does not meet the 1% rule, it may not be a good investment because it may not generate enough income to cover expenses and provide positive cash flow. By using the 1% rule, investors can filter out properties that do not meet their investment criteria and focus on properties that have the potential to provide a good return on investment.
How to Apply the 1% Rule in BRRRR
Now that we know what the 1% rule is and why it is important, let’s discuss how to apply it in BRRRR. Here are the steps to follow:
Step 1: Determine the Total Cost of the Property
The first step is to determine the total cost of the property, which includes the purchase price and renovation costs. This will give you an idea of how much money you will need to invest in the property.
Step 2: Calculate the Monthly Rent
The next step is to calculate the monthly rent that the property should generate. To do this, multiply the total cost of the property by 1%. For example, if the total cost of the property is $150,000, the monthly rent should be $1,500 or more.
Step 3: Analyze the Property
The final step is to analyze the property to determine whether it meets the 1% rule and your investment criteria. This includes evaluating the property’s location, condition, potential rental income, and expenses. If the property meets your criteria and generates enough income to cover expenses and provide positive cash flow, it may be a good investment.
Final Thoughts:
The 1% rule is a guideline for real estate investors who use the BRRRR method. It helps investors determine whether a property will generate enough income to cover expenses and provide positive cash flow. By following the 1% rule, investors can filter out properties that do not meet their investment criteria and focus on properties that have the potential to provide a good return on investment. Remember to calculate the total cost of the property, the monthly rent, and analyze the property before making an investment decision. With the 1% rule in mind, investors can make informed decisions that will help them achieve their real estate investment goals.