Home News Should You Invest in a Rental Home? Here’s Clark’s 1% Rule

Should You Invest in a Rental Home? Here’s Clark’s 1% Rule

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Thinking about making some money moves in your home? There are several opportunities in the current housing market that you might want to take advantage of.

money expert clark howard I recently heard from a retired listener that she wanted to know if she and her daughter should buy their current house at 50% for $300,000. She converted her home into a rental unit and purchased a new location for herself.

Ask Clark: Is it smart to invest in a rental home?

Clarke says such questions come with many variables. That includes the big one, “What rent can you generate in a month?”

“To be considered a solid investment, the rent you get from it has to represent at least 1% of the value of the property when you buy it at half interest,” he says.

Here’s how it makes sense to rent your home

“If your property is worth $300,000, that means you have to be able to get a substantial rent of $3,000 or more per month to get a reasonable return on your investment,” says Clark. increase.

He advised listeners that if he could get more than $3,000 a month on a traditional long-term lease, the purchase would be a pretty good deal for him and his daughter.

on the other hand …

Clark says the only way to hit the $3,000 monthly threshold is to list your home on short-term rental services such as: AirbnbsIf so, it may not be economically viable to rent it out.

“Airbnb is not the same as long-term leasing because the costs associated with regular tenant turnover are much higher,” he says. “Owning a property as an Airbnb tends to require more maintenance and potential repairs.”

Also, when renting a house for a short period of time, the potential for stable income is less certain.

“At Airbnb, our business model has to work at 50% occupancy, which means we need to occupy at least 50% of the nights,” says Clark. “There may be a certain peak week, but if the occupancy rate is much lower than that, it will be difficult for Airbnb to actually work for a reliable income.”

The Determining Factor: Your Motivation

Ultimately, Clark says whether or not to rent a home has a lot to do with expectations and motivations.

For listeners, Clark asked, “Are you doing this to help your daughter, or are you doing this strictly as an investment?”

If your answer to that question is just helping others, then the income you generate isn’t all that important, Clark says.

On the other hand, “the numbers have to work if it’s so important to generate enough income out of it to live a secure life ahead,” he says.

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