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Hey guys! Just a reminder that today marks the first day of the 28 Day Network Challenge. I plan to share on Saturdays my updates for the week. I’d love for those who are participating to also share their victories along the way!
My wife and I are currently at a crossroads trying to figure out what to do. Here is a quick backstory. My wife’s older sister has special needs. Her sister’s full-time caregiver was her mother until she passed away in 2011. So, my wife has stepped into that caregiver role over the last 5 years.
My Sister-In-Law’s Dreams Come True
One of my sister-in-law’s overwhelming desires is to move into her own apartment. She has wanted to exert some independence in that manner for about 10 years now. Recently, her prayers were answered. She was awarded a voucher from the county that would subsidize an apartment for her up to a certain amount. She was actually the first person in the county to get approved for this specific program. Since she has a steady job that will cover her portion of the rent each month, this seems like a great situation.
Because of her special needs, my sister-in-law is also eligible to have a Live-In Aide. So she will have adult supervision and care when needed. It’s great that the county takes care of its aging special need adult population in this manner. They are phasing out group home settings at this point, so integrated apartment living seems to be the trend. My sister-in-law is excited to say the least.
Experiencing Difficulty Securing a Place
Unfortunately, 99% of apartment complexes in our area do not accept this voucher from the county. I don’t know exactly why. It’s similar to a Section 8 voucher, and most complexes around us definitely do not like those. Maybe because the voucher creates extra steps for them with paperwork. Additionally, getting approval from the county is not a fast process. After getting rejected from virtually every apartment complex in the area, we finally found a landlord that was willing to accept the voucher.
A Lengthy Process
We filled out the preliminary application and agreed to terms in mid-December. We are still going through the final approval process through the county. To say that this is a long, drawn out ordeal is an understatement. Why it takes going on 45 days to process a stack of paperwork is beyond me. It doesn’t help that most parties involved in this process have made mistakes here and there, creating more delays to the process.
One of our biggest fears at this point is the condo owner will decide to back out. This would cause us to have to restart our search. On top of that, when we found the unit, the owner was listing it to sell and rent at the same time. So it’s clear that she may decide to sell the place in the future.
Buying a Property Ourselves
My wife and I have been discussing whether or not it makes sense to buy a place in the future. If we did, we would specifically rent it out to my wife’s sister through the voucher. The county actually encourages families to do this, as it provides for a stable environment for the special needs individual.
The 1% Rule
Something I learned early on is that you should not buy a place if it doesn’t meet the 1% rule. For those that are unfamiliar with the 1% rule, let me quickly run through it.
The 1% rule states that the gross monthly rent should be at a minimum 1% of its final price. 1% of it’s final price includes all of the repairs and renovations needed to maintain the property.
- A property that costs $200,000 should rent for at least $2,000 per month.
- A property that costs $250,000 should rent for at least $2,500 per month.
- A property that costs $300,000 should rent for at least $3,000 per month.
My Reality vs the 1% Rule
Living here in the DC area, I have yet to find a house that meets this threshold. And believe me, I’ve been looking over the past few months. The best that I can find is close to 0.5% of the property value.
- A property that costs $200,000 rents for at least $1,000 per month.
- A property that costs $250,000 rents for at least $1,250 per month.
- A property that costs $300,000 rents for at least $1,500 per month.
Other Costs Involved
Who’s kidding who though? There aren’t very many properties that are that low. Plus, most of the condos in our area charge HOA fees in excess of $300-700 per month, which contributes to the cost of the property.
On top of that, the problem with a 0.5% gross rent of the property value is most experts will say that you need to buffer in 50% of the rent to cover unexpected repairs. Most years, you probably won’t have to spend this money. But when it comes to a new roof or a new HVAC system, you’d be spending quite a bit. Having good credit is essential to being approved for being able to buy rental property. If you are looking to improve your credit, please visit here.
Not a Good Option for Us
So based off that analysis, it appears that I would barely break even. And that is without the risk of some major appliance breaking or another expensive repair. Initially when I started the analysis, I thought, even if I don’t make any money, it would still provide a stable housing situation for my sister-in-law. But upon further analysis, it appears that I would have to subsidize her housing if I utilize 50% of the rent for house upkeep. That means the whole mortgage is coming out of my pocket each month.
While I would love to help my sister-in-law out, I’m just not sure it would be a wise financial move. As I have mentioned before, we plan to move ourselves in the near future to another home with a little more space, so we need to save up all the cash we can!
Readers, have you bought an investment property eschewing the 1% rule? Do you consider the 1% Rule necessary, or something to loosely considered? Share your thoughts below.