HOMEBUYERS, INVESTORS, FINANCE
What is the One Percent Rule?
Who wants to make an investment that doesn’t yield a return? Certainly not real estate investors. They have formulas to assure their success as much as possible. One favorite is the one percent rule.
Rocketmortgage.com explains that the one percent rule “measures the price of the investment property against the gross income it will generate.” That means that an investment must generate at least 1% or more in rental income based on the original purchase price. The rule continues as the investment property appreciates in value, which means the potential for profit in the form of higher rent is even greater.
To find a property that will be profitable, multiply the purchase price of the property by 1%. Another way to calculate it is to move the “comma in the purchase price to the left two spaces.” The result should be the minimum you charge in monthly rent. If the property requires any repairs, you’ll also want to factor them into the equation by adding them to the purchase price, then multiplying the total by 1%.
If you want to buy an investment home for $300,000, you should be able to collect $3,000 in rent. Ask your Berkshire Hathaway HomeServices network agent to provide a comparative market analysis of nearby similar properties so you can compare purchase prices and rental prices for those properties.
For greater accuracy, include the costs to renovate and repair the property, and to bring it up to modern building codes for safe habitation.
HOMEOWNERS, HOME BUYERS, HOAS, HOME OFFICES
Will Your HOA Allow Your Home Business?
Homeowners’ associations (HOAs) are formed by the owners of units within a community to manage, maintain and improve quality of life for residents and increase their property values. And there are four things all HOAs hate—strangers, traffic, safety issues, and anything that might cause declines in property values, such as home-based businesses.
Out of 32.5 million small businesses, about 19 million are home-based or began at home, according to The U.S. Small Business Association. Following the pandemic, many workers found that they want to be their own bosses, but HOAmanagement.com reports this is a growing issue for HOAs that prohibit homeowners from using their properties for commercial purposes.
While it’s fine to have a home office business such as accounting or search engine optimization, your HOA won’t allow you to use your home for obvious commercial use such as manufacturing, storing large equipment, or making or receiving frequent deliveries. HOAs don’t want people coming and going to your house or for trucks and cars to crowd the streets and parking spaces. It makes your neighbors feel put upon, inconvenienced, unsafe, and less confident in the security of their community.
As an existing homeowner, you should have a copy of your HOA’s governing documents and by-laws, also known as CC&Rs—covenants, conditions, and restrictions—so you can see where your HOA stands on the issue. If you’re considering choosing a home in an HOA-managed community, your Berkshire Hathaway HomeServices network agent can help you obtain the CC&Rs and other documents you’ll need.
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