The 1% rule is a guideline used in Canadian real estate investing when evaluating potential rental properties.
According to the 1% rule, a property's monthly rental income should be at least 1% of the purchase price.
The goal here is to narrow down the field of investment properties to those most likely to produce
sufficient positive cash flow after covering expenses like the monthly mortgage payment
and providing sufficient cushion for vacancies or unexpected maintenance items.
The 1% rule is intended as a guideline, not a firm line in the sand.
It is less effective when it comes to properties that are likely to have
higher-than-average maintenance expenses or vacancy rates or
that have other unusually high ownership costs.
The 1% rule should be used as a part of a thorough analysis,
not as the sole method of evaluating real estate investments.
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