Understanding the 2% rule

2 Replies

Hello all. I'm new to this industry and trying to ingest as much information as possible. I'm currently going through the UBG and i'm on the section of the 2% rule. I live in a major city and I'm just not understanding how this rule works. I mean, I KNOW how it works, but where I live, I can't fathom you would be able to get 2% rent on the total cost of the property. For example, taking my SFH that I live in now. I purchased it for 250k. Rent in the area goes anywhere from 1500 to 2200. My house is a complete rehab so I would think I could get on the higher end. The thing is, that's no where NEAR 2%.

So, is this more for a "buy a distressed property, fix it up and then rent it out" type of deal?  I assume it could work in more rural areas I suppose but I just don't see how it would work even if you purchased a property for a good deal, that may need a little TLC in the end.  At most, 1%.  I'm thinking this really depends on either where you live, purchasing a Foreclosure property or a distressed property and fix it up.  Am I correct in stating this?

Thanks all.

It's a bit of an outdated rule. Earlier in the current market cycle, those deals were easier to find. Now that prices have risen back to pre-recession levels, the 2% rule is much more difficult to meet.

Distressed off market properties are where you're going to make the 1% (or greater) rule work in most markets. You're correct. Anything that hits the MLS and is an actual cash flowing deal right off the bat is going to be bought up very quickly these days.