A popular formula to help you decide if a property is a good investment is the 1 percent rule, which advises that the monthly rent of the property should not be less than 1 percent of the initial cost, including initial renovations and purchase price. The 1% rule of real estate investment measures the price of investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or not less than 1% of the purchase price. You decide if 6% get a good return on your investment.
If you can find higher-quality renters in a nicer neighborhood, then 6% could be a big benefit. If you're getting 6% for an unstable neighborhood with a lot of risks, then this return might not be worth it. Even if rental properties are your primary investment, you should invest some money in other assets. It works well as a guide to determining a good investment from a bad one and narrowing down property options.
For someone looking to acquire one or two investment properties as a way to supplement income, I would recommend against this. Investment properties can be a solid strategy for wealth accumulation, especially today, and there are several basic strategies you can follow.
