Why adhere to the One Percent Rule when buying real estate?

If you're serious about building your wealth it is vital to manage risk along the way.

The One Percent Rule is used by real estate investors when analyzing the purchase of a property they are intending to keep in their rental portfolio.

There are 4 reasons it should be used on every long term real estate purchase including your primary residence:

1. Freedom. Using the One Percent Rule will allow you to move out of your residence at any time and rent it out with a good probability of enjoying positive cash flow.
2. Net Worth. When you use the One Percent Rule, you own an asset that generates enough income to pay for itself which also increases your net worth.
3. Peace. Stress is a leading cause of disease. Not having to worry about fluctuations in the economy because you've protected your ability to hold an asset for the long term will help you sleep better at night. 
4. Cash Flow. Using the One Percent Rule tends to promote positive cash flow, which you could use to re-invest in your property or, if you build enough of it, to escape the rat race. 

So what is it?

The One Percent Rule is a rule of thumb that stipulates that the rental income generated by a property every month needs to be, at a minimum, one percent of the purchase price of the property. Using this criteria, a home that costs $125,000 would need to bring in at lease $1,250 in monthly rental income before you'd consider buying it.

Full disclosure, I don't use the one percent rule on every single house I buy. Part of my investing strategy involves flipping houses where property is never going to be leased and equity is the primary concern. The one percent rule doesn't apply to that situation, but it's still a valuable metric to use on any long term real estate investment, which is what you should consider your primary residence to be.