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You'll typically have a lot of fewer potential renters at the "high end" of the market.
It could potentially be a good strategy if you find the area is undeserved but I just don't see many higher end properties cash flowing.
It has been our strategy & so far it's working. Granted, "high end" out here in small town East TX is very different than "high end" in a large urban market. There is a glut of old, unrenovated & income based properties for rent for pretty cheap & we've found that young professionals crave something better. We've been able to buy super fixer-uppers at pretty low prices, put in new kitchens, bathrooms, nice flooring & the occasional full gut & roof, etc. and still make a good profit. That said, the market here is changing and some of it is directly due to us - we fix up one or two houses on the street & then the cost goes up on the crappy ones. It's made it hard to find any deals this year in our target neighborhoods. The price per sq ft is increasing & the amount of work they need is costly but the rents here are relatively stagnant. So, although ours are really nice for the area, there is a definite rent ceiling so we have to be very careful on the buy & reno.
Due to this, we just purchased our first property out in the county. We've been nervous about investing out of town because we like to go by & check regularly to make sure things are being maintained and there is the very real possibility of "illegal activity" when properties are secluded & ain't nobody got time for a meth lab on site. We drive by this one every day on our way home so it seemed right. Here is a breakdown: Very small 2/1 on one acre, small storage building, no garage.
Purchase price: $20,000
Super lucky get & what we strive for. We network like crazy, talking to every stranger in the hardware stores, restaurants, etc. to see what they know about the area. It was on the market last year for $45,000. Seller went FSBO for $30K but lives a few hours away- tired of having it mowed, paying water & watching it deteriorate. Inherited it from her father. Been empty for a couple of years.
Estimated reno costs: $25-30,000 *
Needs a lot, obviously. Things we don't do ourselves & where most of the money will go: Driveway work from erosion, new septic, hvac & some electric work (although we lucked out with a new 200 amp panel & up to date wiring), having some giant dead pines cut & possibly roofing. Things we do: kitchen, bath, flooring, some plumbing, new deck & paint inside & out)
Rent: $800/month
Already rented. A tenant in another property (1/1) told us she was moving out when her lease is up in September because she wanted.... you guessed it.... a 2 bed in the country where she could have a dog. She is a fantastic renter: professional, clean, always on time. We didn't want to lose her. We could probably get $850 but she is a "known" and we know it will be well taken care of. She will go month-to-month where she is until this is ready. Win-win!
So, it is possible to do better than the 1% rule if you can buy well, do a lot of work yourself, watch the fixer-upper costs & manage them on your own. We now have 10 properties & all of them beat it. It's been a ton of work but we should have all of our initial investment back in 5-6 years - then it will be all profit and equity.
*Edit: Estimates are rolling in this morning on services mentioned & we might luck out with $20-25K on renovation. It pays to work with the same contractors - they will work with you for repeat business.