The real estate market is a very complicated world to navigate, and profiting from it cannot be reduced to any simple or tidy equation. If you are too overwhelmed to find a solution, this 1% rule in real estate investing is a good place to start. It is a fast way to compute and determine if a real estate property is going to furnish you with a kind of cash flow that you would think is a good return on your investment.
You would do well if your perspective is broad enough to accommodate lots of different factors to help you decide whether or not to buy a certain property and how much rent to charge. Elements such as neighborhood, tenant turnover or vacancy rates, repair expenses, and risk appetite should all be taken into account.
Details on the 1% Rule and the reason behind it
1 percent rule or in short, the 1% rule in real estate investing is used to know if the monthly rent collected from a real estate property should be greater than its mortgage payment paid by the investor monthly. The aim of this rule is to make sure that the rent will always be higher than, or at the very least equal to the monthly mortgage.
This ensures that the investor does not incur a profit loss on the property.
Again, the monthly rent should be the same or greater than the monthly mortgage payment, to guarantee profits or at least to offset the cost. Also, when computing how much rent to charge, you should multiply the price of the property plus any repairs done by 1% to know the lowest possible rent to collect from the tenant. This goes without saying that the investor should at all times seek a property whose monthly mortgage payment is less than 1% of its purchase price.
The 1% rule is useful in computing the lowest possible rent an investor can charge on his real estate property. This rule is very applicable to all residential and commercial real estate properties being put up for rent.
Buying a real estate property that you aim to use for investment behooves you to mull over a great number of factors. Still, the 1% rule is a good rule of thumb to follow to start succeeding financially in the real estate industry.
How does the 1% rule work?
This easy and straightforward formula multiplies the price of the real estate property when you bought it, plus all the repair costs you have incurred, by 1%. The resulting figure should be the minimum monthly rent you should charge. It is also juxtaposed to the monthly mortgage payment the investor is shouldering to give him a bird’s eye view of the investment’s monthly cash flow.
This rule is used to simplify things and untangle the complicated knots for the overwhelmed investor, since it does not consider other expenses connected to a real estate property, such as maintenance, taxes, and insurance.
One good example is an investor aiming to acquire a PAG-IBIG or bank loan on a rental property with a price worth PhP 3,000,000.00.
When we employ the one percent rule, the investor would calculate a PhP 30,000.00 monthly rental fee, since PhP 3,000,000.00 multiplied by 1% is PhP 30,000.00. In this scenario, the investor should look for a mortgage loan with monthly mortgage that is less than PhP 30,000.00, so he could earn a profit once he collects monthly payments from his tenants.
Another calculation that comes in handy aside from the one percent rule is the gross rent multiplier. The gross rent multiplier computes for the amount of time the total purchase price of the property will be paid off. In our previous example, the investor would divide PhP 3,000,000.00 by PhP 30,000.00. The resulting figure is 100, which means it would take the investor 100 months or 8.3 years to totally pay off the purchase price. It would be better for the investor if the resulting gross rent multiplier is smaller, since that means he could pay off the property in a shorter amount of time.
Of course, it would be prudent for the owner to also know the prevailing rental rates of the area where his real estate property is located. For instance, of the average rent for the same type of property worth PhP 3,000,000.00 is only PhP 25,000.00, it would be unwise for the owner to stick to the one percent rule and still charge PhP30,000.00. By lowering his asking rental price, he makes his property more attractive to tenants. Again, the key is searching for a monthly mortgage that is significantly lower than the one percent of the purchase price, so he can afford to lower his rental prices while still netting a tidy profit.
One factor to keep in mind is the cost of maintenance on the property. We should all remember that repairs and other maintenance expenses rest on the shoulders of the investor. Yes, the rental deposit/advance payments can cover some costs, but it is also vital for the owner to set aside a percentage of the rent to spend for maintenance costs.
After all, a well-maintained property is more attractive to prospective tenants. Also, if some of the money set aside for maintenance is unused, it could be added as profit. You could also save it for future maintenance expenses.
On the whole, real estate investments can be very profitable for investors who are in for the long haul. The monthly rent, whether dictated by the one percent rule or slightly lowered to be competitive with other properties in the area, sets the monetary baseline expected by the tenants. The investor can choose to raise rent periodically to keep up with inflation and other property expenses, but the prevailing monthly rate is a significant determining factor of the property’s total net revenue.
This rule is actually commonly used by well-informed real estate investors and has actually gained success from it.
The 1% rule is very popular in the real estate world, in the sense that many wise investors have actually used it and became successful because of it. The fact is the rule would not have stood to this day had it not been for the successes of those who followed it.
Read Also: A Gateway to Success: How to Invest in Real Estate for Beginners
One percent is as close to a magic number as there is in real estate since it combines profitability on the part of the investor and fairness on the part of the tenant. Striking a balance between profits and ethics is one of the greatest conundrums of capitalism, and the one percent rule is a great step in the right direction.
Steps on applying the 1% rule to your Bria Home
If you want to profit using the one percent rule, you should take a look at Bria Homes. Bria Homes has been one of the most trustworthy companies in the Philippine real estate industry. Unlike other real estate companies, Bria Homes separates itself by offering affordable house and lots and condominium units that do not burn a large hole in any Filipino’s pocket. Its offerings are reasonably priced so as to provide Filipinos a chance to finally acquire a home they can call their own.
Bria Homes is the most suitable choice for normal Filipino workers and OFWs who desire to invest in a home of high, reputable quality that is also relatively inexpensive.
For as low as PhP 1, 897.00 per month, any Filipino can purchase his dream Bria house, which is perfect for those who are not yet as financially established. Bria’s house and lot packages can range from Php 460,000 to Php 1.5M while its condo units range from Php 1.5M to Php 3M. Truth be told, any Filipino will find it difficult to score or land cheaper deals that those offered by Bria Homes.
There are two steps you can go about applying the one percent rule to your Bria Home. The first step is looking at the available affordable options that Bria Homes offer. Bria’s clients have a wide-range of home options to choose from: Elena, a 22 sq. m unit on a 36 sq. m lot; Bettina, a 44 sq. m unit on a 36 sq. m lot; and Alecza, a 36 sq. m unit on a 81 sq. m lot.
Aside from its house and lot packages, Bria Homes also features urban living through Bria Condos, where beautiful 24 sq.m studio units are up for grabs. Location-wise, there are many available Bria Communities all over the country, from up north in Pangasinan to down south in General Santos City.
Second is selecting the best and most affordable Bria Home available. When you have zeroed in on your choice of a Bria Home as rental property investment, you as an investor can avail of financial funding (PAG-IBIG housing loan or Bank Financing) or other low-interest options that can further lighten their BRIA mortgage payments.
After securing the cheapest mortgage option available, you can now proceed to compute for rental fees to charge to potential tenants, using the one percent rule.
With Bria Homes’ affordability, the 1% rule is definitely something you can use and it can help you achieve a passive income for the future
A low Bria mortgage payment means you can apply the one percent rule seamlessly since there is a lower bar to clear in order to profit. For the abovementioned example, let us say you get that PhP 1, 897.00 monthly mortgage. The resulting figure from the one percent rule needs to be only slightly higher than the said mortgage for you to earn a profit. And surely, PhP 1, 897.00 is an amazingly low bar to clear. Hence, charging a monthly rental upwards of PhP 2,000.00 shall be a net profit for you.
Investing in a Bria property would provide you with passive income. Passive income is generated when you are not actively involved in the operation of the real estate property that you purchased. Passive income, with minimal effort or involvement should result with regular cash flow, with your money working for you instead of you working for money.
You can have a Bria house and lot or condo unit and rent it out. With the advent of apps such as Airbnb, one good option nowadays is to turn your Bria Condominium unit into an Airbnb home for tourists searching for a place to stay wherein you can charge your occupants on a per-stay basis.
For personal preferences or other needs such as for safety purposes, some homeowners choose to rent out their Bria Homes unit or property to their relatives or close friends who they trust will take care of the property.
Unlike other big-ticket purchases such as cars and luxury cars that depreciate in the long run, Bria real estate properties are more likely to go up in value. Also, one can already monetize his property as soon as he buys it, by having it rented or leased.
And finally, despite the COVID-19 pandemic, real estate has become more resilient to economic volatility due to uncertainties and unforeseen events such as regular change in community quarantine statuses which greatly affected many businesses and has already caused the stock market to go down, causing great losses to many stockholders. Having Bria Homes as one of your property investments can counter the adverse effects of money market fluctuations since property values remain the same, shielding its owners from heavy financial ruin.
BRIA Homes is a subsidiary of GOLDEN MV Holdings, Inc., .one of the largest real estate companies in the country. BRIA Homes is primed to bring quality and affordable house and lot packages and condominium units closer to ordinary Filipino families. This is the goal that drives every single employee in the company, for which the ultimate fulfillment is seeing a client happily moving into BRIA’s homes.
To know more, visit their website at www.bria.com.ph, like and follow “Bria Homes, Inc.” on Facebook, Twitter, Instagram, YouTube, Pinterest, Spotify, Viber Community, Telegram Channel, Kakao Talk, LINE, and WhatsApp, or call 0939-887-9637
Written by John Jerome Bongato
