The 1% rule doesn't seem to work in my city- my current house's mortgage is $820/month, but would rent for at least $1600; possibly $1800. The house was purchased 2 years ago for 201.4k. If I follow the 1% rule, I should be getting 2,040$/month; but my mortgage is way under that. Is this an exception to the 1% rule?
Like any asset class, there are good investments and bad investments in real estate. And like any asset class, the market price will change over time. For some reason, many people think that it's always a good idea to invest in real estate, and that's foolish.
There are many, many places where home values have climbed faster than rents in recent years, and it's very very difficult to find homes that meet the 1% rule. That means that real estate likely isn't the best investment option in those places at this time. If this is to be an investment, it makes sense to try and maximize your return, and the 1% rule and 50% rules are quick and easy ways to test if an investment in RE might outperform the stock market historical averages. If it's not going to beat the market by a comfortable amount, then you need to look in other locations, or other asset classes. This is precisely why low fee index funds are the 'easy button'. They're very diversified, they require no work from the investor, they can be bought/sold more easily than RE, and transaction costs are far lower.