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1.6 Rule
The 1.6 rule is an investing rule. It is a rough approximation for rental yield. The rule states only purchase a property if:
Weekly rent x 1000 divided by 1.6 is greater than or equal to the purchase price
So for example if the rent is $200 p/w x 1000 = $200,000 divided by 1.6 = $125,000 then according to this rule you should purchase only if you can secure the property for $125000 or less. This approximates a 8.32% yield.
Limitations
Buying rules of this sort are approximations and should not be relied on as a sole guide to a good purchase. Instead their role is mainly to sort out the wheat from the chaff and to indicate which properties are worth investigating further. The 1.6 rule only considers one salient feature (cashflow) and doesn't consider other relevant considerations such as equity or capital gains.
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[http://www.propertytalk.com/forum/showthread.php?t=173--Monid 03:34, 31 December 2007 (NZDT)
