Q: Why would you include depreciation? That's just tax deferral, not actual savings.
Tax deferral is savings. It allows real actual money to be saved.
Q: And if it's not your residence, there aren't any income tax deductions to be had.
Go back and read a real estate investment book. Investment properties also get tax deductions and you can deduct a heck of a lot more as an investment property.
Q: This property will bring in something like a 6% annual return assuming NO vacancy, no maintenance AT ALL, no legal fees, management fees, special assessments from the HOA, etc. Add in some vacancy, a bad tenant or two, paying a manager (or paying yourself your own going rate to do the work), and at least some maintenance and you're at basically zilch. You might make something on appreciation. Or you might not.
It also assumes no increase of rent which is very unlikely. She can check on health of HOA reserves and any history of special assesments to see if there is cause for concern.
Q: The fact that properties that don't meet the 1% rule don't exist in your/the OP's area doesn't mean that you should buy something that doesn't. It means your area is currently not a great place to buy rental property. Look elsewhere or at alternate investments.
Also places that meet 1 or 2% rule typically will be low rent, lower price places and lower appreciation. And also they will tend to be 5+ unit apartments that cost more in total cost and higher rate of financing cost for commercial loans. In the beach areas of San Diego, you are looking at 3 to 4 cap deals. That means you can expect to get 3 to 4% return on cash purchases. So why do people buy these properties? Appreciation!!! And potentially lots of it. It's the difference between buying a useable but basic car or a collectors item. Both will get you from point A to B but the collectors item will have a ton more interested buyers at resale. It's a greater gamble and the safety margin is in buying at right price or right time and/or selling at the right time. Buy low and sell high or buy high and sell higher, but avoid having to buy high and sell low. Much like buying a high PE ratio growth stock and making money.
Value cash flow investing is one way to make money in RE but not the only way. Some people have a knack in seeing areas of change and appreciation, some people can improve homes. Every celebrity that you have seen buy a home for $5 million and sell for $10 mil do it with appreciation. And high appreciation investing is about having a good eye for growth trends.
Also not everyone wants to buy out of town. If one is limited to buying in town, then look for the best deal you can. I've bought things that were awesome deals and others that weren't as great, but if managed well and purchased with decent safety margin, they all made me money. And only the properties recently bought during 2009-2011 met the 1% rule and barely but one those properties already nearly doubled in price and my $35k down payment has been turned into equity of $125k in 2 years plus 12% cash flow during that time. Had I only cash flowed 4% during that time, I'd still be happy.
I still think that buying, renting, then refinancing is the way to go. It'll be a good way to get feet wet and not a bad one. You'll have decent cash flow and you can work on increasing it through smart improvements to draw good tenants. And you can prevent bad tenants through good tenant screenings. Don't rent to anyone with below 680 credit or bad rental history. That will save you 90% of headaches right there.
That's another side of the 1-2% rule properties, typically you are in rougher areas of town or country and you have to deal with lots of problem tenants. College kids are potentially problematic but if you choose wisely, you really can avoid most problems. I've honestly maintained less than 2% vacancy rate for my 5 personal properties over the last 5 years and close to 3% for my clients. Good management can improve returns.