2% Rule Calc on BRRRR

[Alex Smith]

On the BRRRR Report, I see that the 2% Rule under the Financial Info section is a percentage. How is this calculated?

My understanding was that the 2% rule was equal to 2% of costs. So, how can the result itself be a percentage?

Thanks,

Alex

[Ned Carey]

@Nicole Heasley Beitenman yes you are correct. Your monthly rent is .052% of the purchase price (or in your case the refi loan amount) 

@Alex Smith the 2% rule says if the monthly rent is about 2% of the sales price it will cash flow pretty well. Of all the rules here this is absolutely the most crude.  

2% may not be the best number for you or your area. Outside of Bigger pockets people use the 1% rule. Generally if the monthly rent is not at least 1% of the purchase price, then it probably isn't a deal.  I can pretty much guarantee Nichole's property will  NOT cash flow at .052% when you take into consideration all the hidden costs. 

Very high end properties, in combination with today's low interest rates may work with different numbers. Also some areas appreciation is a significant part of your return and cash flow not as important. The point is you need to find out what works for you in your area. Once you know that it can become a quick screening tool.