I am trying to estimate if this is a market I should pursue.

Example home would cost up to 100k. So let’s assume 100k home. 20% down = 80k mortgage.

Assume a piti of $650 and rent of 1100.

This leaves $450 per month.

Is this spread too low for a rental single family home?

I am trying to figure out a formula to assist me. Something like, if the home will cost $X per month, you must be able to collect $y per month in rent to have a shot at being positive.

With numbers like that you should buy every house in town. I just did a little deal like this:

Purchase price including $3500 for repairs is $22,000. It is a 2br 1 bath that will rent for $495. I put down $2500 and borrowed the balance at 12% because of my bad credit rating. My PITI is a little less than $300. I am trying to do 100 of them asap

That was what I figured some of the Houston props I checked out would be like. It was just a general idea, but wanted to see if I needed a huge spread.

Too general to be true all the time. In my example above the $22,000 house will rent for $495 per month which is 2.25 % of the purchase price. The higher the value of the property the lower the % rent. For example a $100,000 will rent for $1000 per month in most areas but a $200,000 probably will not bring $2000 nor will a $500,000 house bring $5000 per month. Also the area it is located will dictate the rent to sales price ratio. I was just speaking to an investor in Seattle where a $350,000 property only rents for about $1000. In markets like that your ration is no good at all.

It is not always true that the property will cash flow either. This mainly depends on the financing. If you pay cash it will cash flow for sure, but you may make a better return elsewhere with the cash. It you borrow 100% of the purchase price at a high rate of interest say 14% you will have a hard time with cash flow.

There are just too many variables for your 1% statement to be true all the time, area, interest rate, taxes, insurance, utilities, % down payment, market conditions, and many others. Your best bet is just to examine each property and compare with other known rental in the area and come up with a rent for the property and look at the expenses to determine if it will cash flow.

The 1% rule would probably be mainly for areas that experience no spikes and remain steady. Here in Vegas, that won’t work. The rent in my area, for my type of house, is generally $1500-$1600. That is no where near 1% of my homes current value.

Of course we just finished a huge spike and rent rates forgot to go up