Maybe you’ve asked yourself how you can start investing in real estate or what good real estate investment metrics actually look like. Well, let’s dip our toe into that conversation to get you started. Whether you’re dreaming about buying your first rental, exploring a fix-and-flip, or just curious about how seasoned investors decide whether a deal makes sense, understanding a few key numbers is the best place to begin.
In this post, we’re breaking down two of the most reliable formulas used by investors across Austin, Round Rock, Georgetown, and Travis and Williamson Counties – the 1% rule and the 70% rule. These formulas aren’t just for spreadsheets – they’re your early warning systems to tell you whether a deal deserves your attention or a polite “pass.”
1. The 1% Rule – For Rentals
The 1% rule is a quick litmus test for rental property viability.
It means your monthly rent should equal roughly 1% of your purchase price.
Example:
Buy for $300,000 ? Rent for $3,000/month.
Why Investors Use It
This rule gives investors a quick way to evaluate potential cash flow without diving deep into every expense line. If a property clears the 1% mark, it’s likely to perform well, at least on paper.
What’s Happening in Today’s Market
Here’s the reality: in 2025, Austin’s rental market looks very different from a few years ago. With new apartments flooding the market and homeowners converting unsold listings into rentals, we’re seeing an oversupply of rental properties. According to Realtor.com, rental prices across the Austin metro have declined by about 4% year over year, with the average rent hovering near $2,100 per month.
That means 1% returns are increasingly rare – almost unicorn-level rare. In our area, most investors are seeing closer to 0.8% returns, even as home prices soften slightly.
So that same $300,000 home may realistically rent for $2,400/month or less, not $3,000. And with property taxes, maintenance, and insurance factored in, cash flow can get tight.
Takeaway for Investors
If you’re running numbers on a rental, assume closer to 0.8% for your rent-to-price ratio. The 1% rule is still a great starting point, but in the Austin and surrounding areas, it’s a high bar. The good news? Our market’s long-term strength – job growth, population migration, and steady appreciation – means that even lower-yield rentals can deliver solid equity growth over time if you’re willing to be patient (…and prepare to be patient).
2. The 70% Rule – For Flips
If you’re more into flipping than holding, the 70% rule is your new best friend. It’s one of the oldest formulas in real estate investing for a reason.
Here’s how it works:
You should pay no more than 70% of the property’s after-repair value (ARV), minus the cost of renovations.
Formula:
(ARV × 70%) – Repair Costs = Maximum Purchase Price
Example:
If a home’s ARV is $400,000 and repairs will cost $60,000, your max offer should be around $220,000.
Why It Matters
The 70% rule builds in a safety cushion for holding costs, realtor fees, unexpected repairs, and profit margin. With rising material costs and longer days on market, that buffer matters more than ever.
How It Plays Out Locally
Recently, one of our sellers reached out to iBuyers – large investor groups that make quick cash offers. They offered him about $480,000 for a home that we’re preparing to list at $650,000.
Why such a big difference?
Because investors live and die by their numbers. To hit the 70% rule and account for profit and potential risk, their maximum purchase price has to make sense on paper — even if the home is in excellent condition.
For that property:
(650,000 × 70%) – $5,000 (estimated repairs) = $450,000
That’s about what a seasoned investor would consider their ceiling. Their $480K offer was actually generous from an investor standpoint, but still far below retail value.
Why Flips Can Still Work
If you find a distressed property, especially one owned for decades, the 70% rule can open doors to profitable flips. But even well-executed renovations can sit on the market today if:
- Corners were cut during the renovation,
- The home backs to a busy street or commercial property, or
- It’s the best home on the block (and comps don’t support the price).
Buyers are discerning and have options. The takeaway? Don’t underestimate the modern buyer. They notice details, and they’re willing to wait for the right home.
The Big Picture
Both the 1% and 70% rules are helpful guidelines – but they’re not the gospel. In today’s Austin-area market, these benchmarks often serve as starting points rather than deal-breakers.
If you’re investing, keep these three principles front and center:
- Run conservative numbers. Assume rent and resale values on the lower end.
- Leave room for surprises. Whether it’s an extra month on market or a $5,000 plumbing fix, it’s not “if,” it’s “when.”
- Know your market. Central Texas is unique – strong job growth, but cooling demand and more inventory. What works in Dallas or Phoenix doesn’t necessarily work here.
The investors who win right now are the ones who stay disciplined, flexible, and data-driven.
Bottom Line:
The 1% and 70% rules won’t make you rich overnight, but they will keep you from overpaying, overleveraging, and overpromising. And in this market, that’s the kind of discipline that leads to long-term success.
If you’re thinking about investing or wondering how these numbers would apply to a specific property, reach out, our team runs these analyses every week and can help you see what makes sense before you jump in.
About T. Kerr Property Group
T. Kerr Property Group are proud to be voted top Realtors in Round Rock and Georgetown. They’ve won accolades including: PT50, ABJ Residential Real Estate Award, and have been featured in Real Producers. Most importantly, the T. Kerr Property Group gives back to their community and are recognized experts across Georgetown, Round Rock, Austin, and surrounding areas. Whether you’re buying, selling, or investing, T. Kerr Property Group is here to help you make informed, confident real estate decisions.