2% Rule

37 Replies

Hi all, I am interested in investing in a buy and hold property within 30 miles of los angeles, ca where I can get the 2% rule. Can anyone make recommendations on a city?

Akron.

The 2% rule is a myth arising out of the mists of the South and Midwest.


I just scored one that will be at least 2.66%. Probably around 3% if I do section 8. Big foot exists!!

2% rule is the norm in the midwest. Not so much on the west coast.

Those California dreams cost $$$

I'm closing on an under performing apartment building in WA next week with current gross rents over 2% of the final purchase price.

It will be even better once we get it turned around over the next 12 months.

@Richard C.

" myth arising out of the mists of the South and Midwest "


Just like your suppose to drink water every day.

2% - 3% is real in Wisconsin (Midwest)

Yeah, exactly. It is real in the Midwest. In the northeast, it is basically a myth.

Will people find one occasionally? I am sure they will. But if they apply it as a hard and fast rule, they won't find many deals.

You can get 2% deals in some cities in Connecticut. You don't even have to look at many deals to find them however they are mostly multi families. Mostly class B and C properties.

I think it's important to point out (reiterate from other threads and posts) that the 2% rule is really the 2% rule of thumb. A property that conforms to the 2% rule, but has really high expenses (taxes, all utilities included in rent, etc) may perform worse than a property that is under 1%, if all the utilities are separately metered and payed by the tenants, etc.

Run the actual numbers, don't just say "hey, it's 2%, I can't lose here!" While it's usually true, there are exceptions, and you may find that your 2% property isn't as good as one that doesn't conform to the rule of thumb. Only running the real numbers will tell you.

As for close to LA, I know the inland empire was good for some time, but think it's been recovering, so may not be as smoking as it once was. Maybe start there.

I totally agree :

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

" Run the actual numbers, don't just say

hey, it's 2%, I can't lose here "

They say nothings impossible. 2% 30 miles from LA might be the exception and today as rare as landing on the moon. LA has more cash investors than anywhere in the country and probably the planet. There is a gentlemen on BP Aaron Mazzrillo, he is in the LA area, check with him for possibilities outside LA proper. He does find buy and hold cash flow in SoCal.

Thanks,

Matt

@Chris K. I assume that wasn't in LA, where she's asking about?

@Matt R. is dead-on

And I absolutely agree with @Kimo Baenen .

I live in LA (Venice Beach) and I would nearly put everything I own on saying that anything in LA that meets the 2% rule, I wouldn't touch with a 10ft-pole.

Sorry to be a buzzkill. I only buy out-of-state.

Thanks for all of the great input all. Sounds like I need to so much more research or find a different strategy for investing.

Much appreciated !

I think more of an adjusted strategy is in order for LA. I know an associate who just picked up a south central LA duplex for 17k in back taxes plus 10k for owner. That one cash flows for more than 2%. He just flipped it for a quick 75k profit as he had no intention landlording in south central.

In LA, anything can happen and usually does. He is like bp Aaron and looking for more. Don't discount your plan yet.

Thanks,

Matt

Originally posted by @Ali Boone :
@Chris K. I assume that wasn't in LA, where she's asking about?

Nope, but my response was to Richard who claimed that it was a myth.

Not sure about all this 2% stuff. In Central Michigan there is no way. I'm looking at a nice duplex that is listed at 77k, could probably get it for 70k, but probably no lower. That would mean I'd have to rent each unit for an average of 700 dollars to hit 2%. Around here if I put a 2/1 on the rental market for 700 dollars, I would most likely have 100% vacancy. No one would be even half interested! Of course I have not yet made my first investment so I may have no clue. Right now my wife and I are renting a 2/1 for 400/month and with a little updating, our landlord could probably get 500 or 550 but no more. People said on here that the 2% rule happens in the Midwest, but I don't see it happening here.

Originally posted by @Andrew Sherwin :
Not sure about all this 2% stuff. In Central Michigan there is no way. I'm looking at a nice duplex that is listed at 77k, could probably get it for 70k, but probably no lower. That would mean I'd have to rent each unit for an average of 700 dollars to hit 2%. Around here if I put a 2/1 on the rental market for 700 dollars, I would most likely have 100% vacancy. No one would be even half interested! Of course I have not yet made my first investment so I may have no clue. Right now my wife and I are renting a 2/1 for 400/month and with a little updating, our landlord could probably get 500 or 550 but no more. People said on here that the 2% rule happens in the Midwest, but I don't see it happening here.

Rules are not really rules with investing. This is a guideline.

Different markets bring different RIO's.

My market for instance brings high RIO's compared to most other states and areas.

So always keep in mind these percentages are guides. In fact until BP i had never heard of any of these rules.

I bought what made sense financially and thats that. No rules.

Originally posted by @Aaron Yates :

So always keep in mind these percentages are guides. In fact until BP i had never heard of any of these rules.

I bought what made sense financially and thats that. No rules.

100% agree.

So would you say to disregard the 2% rule completely? Cause honestly I can barely see getting 1%. Maybe certain parts of town or over in Saginaw I could do 1.5-2 but I'm not interested in dealing with tenants in those neighborhoods. I just don't want that kind of headache. I guess less risk=less profit.

just rented a place for $895, recently bought for $36,000
have place for rent for $895 paid $32,000
rented place for $1,025 recently bought for $49,900
rented place for $795 recently bought for $41,000
have place for rent for $1,195 recently bought for $62,000
rented a place for $275 recently bought for $3,000

but one of the best was a place bought for $30,000, that the first tenant rented for $2,050 (yes,a month)

That 2% rule or even the 1% rule is impossible to get, so don't even try!

But those numbers just aren't possible around here. I'm not saying it can't happen other places, but I'm not sure too many here on BP would agree that it's the norm. If love to rent a 70k SFR for 2000 a month. But there is nobody here that could or would pay that. I feel like I can still positively cash flow, but I can't hit the 2% rule.

The latest podcast on MF investing touches on the 2% rule. Have a listen....

Originally posted by @Andrew Sherwin :
But those numbers just aren't possible around here. I'm not saying it can't happen other places, but I'm not sure too many here on BP would agree that it's the norm. If love to rent a 70k SFR for 2000 a month. But there is nobody here that could or would pay that. I feel like I can still positively cash flow, but I can't hit the 2% rule.

If it's not possible in your market, then it's not possible in your market.

You can always invest out of state if you really want to get the 2% Rule but that comes with pitfalls as well. Real estate is local so you have to see what the market offers rather than pigeoning yourself in a small hole.

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