The 2% rule kills values
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesThe 2% rule kills values
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Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
12yThis is a classic example of mass stupidity IMHO. Someone invented the 2% rule because that was the sweet spot AT THE TIME. It was never a "rule" it was simply a calculation that fitted good deals at that moment.
It is no more valid than saying you should never pay more than 2 grand for a brand new car. That was a sound rule in 1970 but it is laughable now.
Unless value to rent ratios remain static there is no such rule.
Just like the 2% rule.........
211 Replies
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes12y
@Jay Hinrichs Interesting post - I think you've given me topic for next week's article :)
A few things.
I do not pay any attention to these rules - like you I didn't know about any of them prior to BP. Knowing what it is, however, I can tell you the following:
Some people buy based on 2% rule, while others buy based on value ad toward the 2% rule - completely different perspectives. The only kind of property that will immediately comply is lower end slum. There are exceptions, but this is the case in general. These properties can not be improved - the market has said no. The desirability is not present in the dirt and the improvements. Therefore, it's not the 2% rule that puts pressure on valuation; it's the marketplace. We want to avoid those at all cost. I've written about why not to buy $30,000 rentals on the blog and discussed this in the podcasts...
On the other hand, a more desirable property, while it may not cash flow 2% at the start, will provide for value ad expandability. Why - because the market supports the expenditures in terms of both rent growth and equity growth. What you have in this case, is a property which in the end conforms to the 2% rule, which also provides for growth relative to valuation.
In making the buy decision, I focus on end result, not the starting point.This is a more sophisticated perspective which escapes most newbies. For this reason,I am constantly fighting with my good (OK best) friend @Brandon Turner to stop emphasizing these stupid rules as they call attention to the exactly wrong things as it relates to buy decision. These rules teach people to think about the wring things - things that don't matter at all!
- Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes12y
@Ben Leybovich So the quick and dirty of what you're saying is if you buy in a B class neighborhood for example but its only maybe 1 or 1.5%, over time that will climb towards 2% with rental increases?
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes12y
@Chris Pasternak Not a chance in hell - I wish it were this easy! None of that "over time" stuff - we drive value NOW. The deals that lend themselves to it are very, very few and far between. I haven't seen one that fits in over a year...
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
@Dawn Anastasi @Chris Clothier @Ed L. @Ben Leybovich @Sharad M. @J Scott @Mike McKinzie
Thank you all for a very spirited conversation regarding this topic.. great perspectives from all.
What I take from this is most of those that responded are in the bizz, IE they work it full time and it is their job.
Those that are successful in the 2% plus type properties generally buy their own deals wholesale over see rehab at best pricing, then self manage or bring the asset into a very controlled environment. And stay right on top of them or in other words are members of the community were they invest and therefor has command and control .
And those of you who happen to live in parts of the country were these low hanging fruit can partake successfully in this business should count themselves fortunate that these assets are so readily available to you within a 30 minute drive..
I did not read anything that changed my mind that the 2% rule keeps prices from rising in any appreciable manner as value only rise's with rent increase's and rents are fairly stable in all these markets.
Lastly as to class of asset being it A B C or D that is in the eye of the beholder, my C could be your D or visa versa .....
Off to Milwaukee today then Chicago Beer and Brats Friday fish Fry, Deep dish pizza Miracle mile... should be a fun week on the road.
Best to all
- Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes12y
Great forum thread Jay and great summary of all the posts responses.
I agree. The "2% rule" is what it is - just a rule of thumb and applies to a property type in C or D areas. I don't invest based on the 2% rule - I based my investment decision on CASH-ON-CASH return.
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
@Wendell De Guzman thanks Wendell remember this just came up as I got a call from someone in my are Portland Or.. and he wanted to know why he could not find any 2% deals in Oregon...and he was frustrated. Once he explained to me what this rule ( guideline was) at that point I realized its a regional thing and as stated for all intense and purposes only applies to low end rentals.
Further I postulated that if investors that are in the Know IE educated on BP and have this guideline in mind that values will remain static in those markets as the PRO"S will certainly only buy under those metric's and rents by and large are static in those particular asset class. That was my point.
It was NOT my point to debate the definition of C and D class I can only go by my 15 year experience loaning in Detroit, Indy, Memphis, Atlanta, Birmingham, Jackson, Houston etc etc as to what C and D areas are like in MY perception. I know what they are in CA... IE compton Watts East Oakland West Sacramento, STockton etc etc.
WE just don't have those kind of ares in Oregon and thats the end of that discussion. Our worse neighborhoods would be strong B in most areas that I am familiar with.. So its just perspective really.
- Philadelphia, PA · Member since 2014 · 13 posts · 3 votes12y
Originally posted by @Dawn Anastasi:
Originally posted by @Sharad M.:
Originally posted by @Jay Hinrichs:
good honest answer on your wife going to your properties.. glad your aware.
In my C stuff over the years I would go there mid week during the day but we always were packing No way at night no way on weekends. LOL and no way wife by herself.
Jay, I think what you are calling C would be D-- for me. I think that's one thing that is so subjective is definition for each area class. Something that's A for me might be B for you and vice versa.
To me also what Jay calls "C" I would call "D". I call my stuff "C" but more like "C+" because the tenants are lower income but not ghetto. But I've been at one of my properties at 11 pm and another day at midnight on a Saturday, by myself, with no protection whatsoever (and I'm a pretty small female) and I didn't feel danger at all.
I guess everyone's definition is different.
To me this post is as ignorant as it gets. So you automatically assume my criteria for a house it lower then yours then assume yours is higher based on nothing. In summary you just said "What u call fair , i would call poor" based on just my sheer opinion and no facts and my (Dawn) properties are C because i bought them so they derserve a semi higher mark. Please this is laughable.Would it be fair if I would say, i own 300,000 worth of property since i paid cash (my house and 2 rentals) and you own 7 houses that are leveraged to the hilt as you stated in a previouis thread so in a sense you did this longer but have no clue what your doing cause I have more money then you. See how baised and unfair to draw conclusions like this.
What are you basing my D is your C? I really really would like to hear this?
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
@Jason C. class of property like you state is in the eye of the beholder !! and very much dependent on the area of the country you work or reside in.
good exercise would be to take Detroit and put it into A B C D class by area and see if anyone can agree on that LOL.
My lending days in Detroit was an eye opener... All PM's were armed,, Office was razor wired and bullit proof glass.. ARmed security guards checking the contractors into and out of the rehab jobs.. And when I first went there it all looked good to me on the surface.
If I look at my market in Oregon its also laughable on the other end... We drop 30k lumber packs right off in the front yard.. No security in any manner.. Never had more than the odd neighbor steal a 2 X4... all mechanical plumbing etc etc is put in with no security.
We don't lock the house up until its been sheet rocked.
Not that theft does not happen in my market it does but its just really rare.. And I am pretty certain in the low end rental markets if you did not secure a home all this stuff would stand a very good chance of being pilfered ..
But it sounds like your new to the game and I wish you the best... And your doing it right your buying properties you can watch like a hawk and you know your hoods that gives you the best chance of success...
- Philadelphia, PA · Member since 2014 · 13 posts · 3 votes12y
I understand everyone has there different opinions on what class they would give a certain property once then seen it, but to draw a blank conclusion is where i have a Big problem at. She basing her BS on absolutely nothing. She doesn't know what my properties even look like and she already gave a opinion that whatever it looks she would give it a lower rank. So in turn she making a sly comment towards me then the actual property cause we haven't seen anything on whether we agree or not. There is people who pretend to do this business and some who actual do it, and then there is some who happen to have properties but have NO clue what there doing and there ego gets blown. Probally making this bigger then what it is but I don't like to get slighted.
- Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes12y
Well, I actually kind of excited about making this comment, that doesn't usually really happen here, but I'm excited to use one of my favorite sayings for probably at least the 5th time in the last couple years or so of posting on BP. Now, I do have a few small exceptions to my little idea here, so be sure to read them before calling me dumb, crazy, etc Thanks! OK, here it is:
I think that an awful lot of people discussing both buy and hold rentals as well as rehab/flips here on BP get WAAAYYYYY too wrapped up in the various %'s, ratos, etc.!! Now, IF one of us lands a new job where we're the guy/girl 100% in charge of a massive operation, maybe for a giant hedge fund buying up rentals all over the USA, or at least in multiple markets, then I'd say go for it with the ratios and %'s as much as you can. Also, my other important caveat here is anyone that's relying on financing or even who has just discuss your RE investing biz with anyone from the financial services business (bankers, private money, even gov't officials that might want some info on how you invest for some reason, etc) then I also very much recommend at least being very familiar with the common ones, because my experience has always been that those people LOVE that stufff and you don't want to look clueless or like you're flying with no solid plans to them. They also have #'s, %'s and ratios for most every other field of business too such as restaurant biz that I was in before, you ought to know your target %'s for labor and food cost or you'll look clueless to them too!
Instead, what I strongly prefer (at least my case personally) is taking everything as its own animal and analyzing all sorts of possible factors that may or may not be relevant on any one property.
On the 2% rule-As I see many have touched on, here in the Milwaukee area where I live and invest, if that's your big deal over everything else, then I can direct you straight to the toughest and roughest part of the city even though Milwaukee's not huge, its still about 1.7 mil in the metro and our toughest areas are often downright dangerous at night and even during the day at times. We've had at least 3 or 4 incidents where some totally innocent person has been shot with at least 1 deaths simply driving through those areas, although a bunch of landlords make money there too. Yet, I think simply dismissing it as where you pay more for fancier areas, get lower ROI but likely better appreciation, better tenant pool, etc. as if its just this basically even sliding scale with less and less ROI but more future appreciation, etc is also selling things WAY too short! I can think of several solid "B" suburbs here for instance that I'd give widely varying grades for wanting to invest in for the long term, yet they're all very much "B" areas!
I've lived here in the Milwaukee area for nearly all of my 40 years and I've seen several big time turnarounds in parts of our metro area, including one area that I was so hot on back when I was still in college and in no position for making some "moves" but had I been, I'd be rolling in it right now, a bunch of other people are! I could let that burn me up, instead I use it for motivation for next turnaround area. I've never heard of ANY rule, ratio, %, etc that could possibly cover that type of investing, the turnaround factor. There's two areas here I'd say are both probably"C" areas that I think are ripe for a big time turnaround, IF things keep moving in the right direction. So, I'd skip over 100 cheaper properties in other "C" areas I see basically zero turnaround chance for, to buy in either of these spots, how would you ever account for that, its very subjective topic.
Of course, you can't spend 100 hours or even 20 hours just analyzing these subjective factors, but I spend a fair amount of my free time and even some regular work time on such research. I think going all objective with all the rules, ratios, etc and not subjective isn't smart, especially if you'd love to hit a few "home runs" here and there! I'd love to hit some home runs, even if it means owning a few less units overall!
- Madison Heights, MI · Member since 2014 · 471 posts · 132 votes12y
Values are generally driven by interest rates, loan standards/government regulations, employment, inventory, and foreign investment. To blame RE investors who seek a certain cap rate seems ridiculous. It is not as though all land lords have joined a 2% cult. Even if they did, this would have a smaller impact than the factors that actually influence values.
- Investor · Aurora, CO · Member since 2013 · 97 posts · 40 votes12y
Originally posted by @Jason C.:
I understand everyone has there different opinions on what class they would give a certain property once then seen it, but to draw a blank conclusion is where i have a Big problem at. She basing her BS on absolutely nothing. She doesn't know what my properties even look like and she already gave a opinion that whatever it looks she would give it a lower rank. So in turn she making a sly comment towards me then the actual property cause we haven't seen anything on whether we agree or not. There is people who pretend to do this business and some who actual do it, and then there is some who happen to have properties but have NO clue what there doing and there ego gets blown. Probally making this bigger then what it is but I don't like to get slighted.
You are imagining the slight and blowing it way out of proportion. In a nutshell, here's what was said:
You: My properties, which are Cs, aren't to be gone to at night / unarmed.
Dawn (agreeing with someone else): My properties are Cs, and I feel safe there at night. Properties I wouldn't go to except during the day are Ds.
You're just disagreeing on the definition of Cs and Ds. It's not anything to throw a fit about. I think that same definition of Cs and Ds being roughly similar properties / neighborhoods with the exception of Ds being ones you only go to during the day is a pretty common one.
- Los Angeles County · Member since 2014 · 30 posts · 6 votes12y
@J Scott @Jay Hinrichs @Chris Clothier @Dean Letfus
Very insightful, guys. I think the 2% rule is good for beginners if you're in the right market. I work in California, and you will never see the 2% rule in effect, unless you're down there right near Mexico. And, still, probably not even then.
I would totally agree that a "rule is just a rule" and every person has to be smart about their location and what type of investor they are. We just sold a building at .57%, according to the 2% rule, and the seller was pretty motivated so he could've gotten more if he would've waited a bit longer.
The 2% rule, 50% rule, etc are great rules if they work. But, in some markets they just aren't attainable. I know I might be told differently on here, but I think California is one of the best places to invest, given that the appreciation is awesome.
I am definitely starting to get attracted to other parts of the country now though, as I see a lot BP'ers are are doing great in certain places.
Great discussion everybody!
- Ben
- 12yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Originally posted by @Robert Blake:
Originally posted by @Jason C.:
I understand everyone has there different opinions on what class they would give a certain property once then seen it, but to draw a blank conclusion is where i have a Big problem at. She basing her BS on absolutely nothing. She doesn't know what my properties even look like and she already gave a opinion that whatever it looks she would give it a lower rank. So in turn she making a sly comment towards me then the actual property cause we haven't seen anything on whether we agree or not. There is people who pretend to do this business and some who actual do it, and then there is some who happen to have properties but have NO clue what there doing and there ego gets blown. Probally making this bigger then what it is but I don't like to get slighted.
You are imagining the slight and blowing it way out of proportion. In a nutshell, here's what was said:
You: My properties, which are Cs, aren't to be gone to at night / unarmed.
Dawn (agreeing with someone else): My properties are Cs, and I feel safe there at night. Properties I wouldn't go to except during the day are Ds.
You're just disagreeing on the definition of Cs and Ds. It's not anything to throw a fit about. I think that same definition of Cs and Ds being roughly similar properties / neighborhoods with the exception of Ds being ones you only go to during the day is a pretty common one.
Correct -- I was ONLY talking about what "grade" I gave my own properties (self-assessment) and was not talking about anyone else.
This is just like calling a girl "pretty" -- one person may say someone is "pretty" and someone else may say that girl is "so-so". Unless you have something actually objective to base the definition on, then everything is subjective.
- Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes12y
Wait a second there Dawn, a girl is either pretty or she's not and that will ALWAYS simply come down to MY personal opinion and that's it! Anyone who might even consider disagreeing with me is WRONG!!!
- 12yMark UpdegraffBusiness MemberReal Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 685 votes
Originally posted by @Larry Turowski:
Originally posted by @J Scott:
Originally posted by @Larry Turowski:
J Scott, you are expecting to net $2,000 on $4,000 gross monthly, so yearly that is at 60% return ($24,000 / $40,000).Nope, see my post above...I'm looking for 12% unleveraged...
One of the following is true in your example above:
1. The $40K is a downpayment (you'll never get $4000 in gross rents on a $40K property). So, your cash-flow is going to be much less than $24K after you pay debt service, and your return will likely be in the 15% range.
2. The $40K is the full purchase price, in which case gross rents will be closer to $800/month, and cash flow will be closer to $5K per year, for a cash-on-cash of about 12%.
Obviously, I'd love 60% ROI, but that's not realistic in today's market...
Ah yes, $24K not leveraged. But Sharad example the return on cash invested (the down payment) is 34%.
I've got 70% LTV mortgages on all my properties and I'm aiming for 40% cash on cash return. Not always hitting it, but that it my goal. I was trying to figure out if I should be aiming higher.
40% Cash on Cash? Not the Rochester I know. I guess you wholesale guys are good at what you do!!
Updegraff Group Realty4.745 Reviews - Real Estate Investor · Los Angeles, CA · Member since 2014 · 143 posts · 29 votes12y
@Dawn Anastasi @Chris Clothier @Ed Lee @Ben Leybovich @Sharad M. @J Scott @Mike M and @Jay Hinrichs
This might be 'sort of' off topic....but whenever I see a property anywhere near the 2%, it's usually attached to a bad market/poor area, high vacancy, and dismal job growth.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes12y
Originally posted by @Account Closed:
@Dawn Anastasi @Chris Clothier @Ed Lee @Ben Leybovich @Sharad M. @J Scott @Mike M and @Jay Hinrichs
This might be 'sort of' off topic....but whenever I see a property anywhere near the 2%, it's usually attached to a bad market/poor area, high vacancy, and dismal job growth.
Everyone needs to realize that real estate is market-dependent and their limited knowledge of real estate across the U.S. isn't indicative of every market. What you see in California is much different than what you'll see in the mid-west. What you see in NYC is different than what you'll see in upstate NY. What you see in Alaska is different than what you'll see in Hawaii.
In some places, houses that meet the 2% Rule are going to be in inner-cities where most people don't want to live or invest. In other places, you can find houses that meet the 2% Rule in decent suburbs and more rural areas where most people would be happy to own a rental or live themselves.
For example, you live in CA, so it doesn't surprise me that you find it hard to find a 2% property in any area where you'd want to own a property. I live in Maryland, and bought a 2% property a couple months ago in a place that has good schools and where I'd be happy to live with my family (in fact, I have other family right around the corner and my wife, kids and I almost moved in there while our other house was being built). I've owned many 2% properties in decent suburbs of Atlanta (I don't buy in the city) and I know of others who own 2% properties in other very decent suburban locations around the country.
Just because it doesn't fit with your experience doesn't mean it doesn't exist. In this case, it means that your experience isn't wide enough...
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes12y
Originally posted by @J Scott:
Originally posted by @Account Closed:
@Dawn Anastasi @Chris Clothier @Ed Lee @Ben Leybovich @Sharad M. @J Scott @Mike M and @Jay Hinrichs
This might be 'sort of' off topic....but whenever I see a property anywhere near the 2%, it's usually attached to a bad market/poor area, high vacancy, and dismal job growth.
Everyone needs to realize that real estate is market-dependent and their limited knowledge of real estate across the U.S. isn't indicative of every market. What you see in California is much different than what you'll see in the mid-west. What you see in NYC is different than what you'll see in upstate NY. What you see in Alaska is different than what you'll see in Hawaii.
In some places, houses that meet the 2% Rule are going to be in inner-cities where most people don't want to live or invest. In other places, you can find houses that meet the 2% Rule in decent suburbs and more rural areas where most people would be happy to own a rental or live themselves.
For example, you live in CA, so it doesn't surprise me that you find it hard to find a 2% property in any area where you'd want to own a property. I live in Maryland, and bought a 2% property a couple months ago in a place that has good schools and where I'd be happy to live with my family (in fact, I have other family right around the corner and my wife, kids and I almost moved in there while our other house was being built). I've owned many 2% properties in decent suburbs of Atlanta (I don't buy in the city) and I know of others who own 2% properties in other very decent suburban locations around the country.
Just because it doesn't fit with your experience doesn't mean it doesn't exist. In this case, it means that your experience isn't wide enough...
@J Scott So how do you explain that the market is ONLY willing to pay 50 times the rent for these great homes in great school districts?
I'll gladly pay the .7% rule because I know I'll be collecting $700 more rent every time my property jumps in value $100,000. Oh, I'll also have the $100,000!
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes12y
Originally posted by @Account Closed:
@J Scott So how do you explain that the market is ONLY willing to pay 50 times the rent for these great homes in great school districts?
I'll gladly pay the .7% rule because I know I'll be collecting $700 more rent every time my property jumps in value $100,000. Oh, I'll also have the $100,000!
I'm not sure I understand the question. It would be like someone who buys .3% properties asking you in your .7% example, "How do you explain the market is ONLY willing to pay 142 times the rent for these great homes in great school districts?"
Having lived in San Francisco for a long time, I know plenty of people who would look at your .7% properties and say, "Must be in some crap location I'd never want to live!" But, you probably think your .7% locations are decent. And they might be. Just like the 2% locations where I've purchased are decent.
It's all relative. 50 times rent. 142 times rent. 300 time rent. These are just metrics, and they aren't tied to a socio-economic class or demographic. Except in your mind, perhaps. I live in the 5th richest county in the nation with one of the best public school systems in the country, and 6 of the top 10 richest counties are within an hour driving distance of here...yet I still know plenty of people who are finding 2% (or near 2% deals) very close to here.
Now, if I *had* to guess why I'm able to get 2% properties in areas not terribly worse than the areas where you're getting .7% properties, these would be my guesses:
- The areas where I buy are less geographically bounded (i.e., there's more buildable space, so land costs are lower)
- The areas where I buy are less geographically desirable (i.e., not on the coast, not near popular cities)
- The areas where I buy have much lower construction costs (i.e., more towards the east and south)
- I'm better at finding good deals than you
- I'm better at negotiating prices with sellers than you
- I'm better at keeping rehab costs down than you
- I'm more efficient at management than you
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes12y
Originally posted by @J Scott:
Now, if I *had* to guess why I'm able to get 2% properties in areas not terribly worse than the areas where you're getting .7% properties, these would be my guesses:
- The areas where I buy are less geographically bounded (i.e., there's more buildable space, so land costs are lower)
- The areas where I buy are less geographically desirable (i.e., not on the coast, not near popular cities)
- The areas where I buy have much lower construction costs (i.e., more towards the east and south)
- I'm better at finding good deals than you
- I'm better at negotiating prices with sellers than you
- I'm better at keeping rehab costs down than you
- I'm more efficient at management than you
OK now I'm confused by your response. And first let me say I don't equate 2% areas by socioeconomic level only. It's mostly about the profitability. My experience shows me that rent to price ratio means very little concerning profitability.
1. Your first three guesses I can agree with. More supply, less demand cheap construction = less profitability. I choose less supply, more demand= greater profitability.
2. Your next four guesses confuse me. I thought the discussion was about an area where the market, not just you, determined the 2% ratio. If you are arguing that you are actually buying in 1,5% areas but because of your "skill" ONLY you are achieving 2% then THAT is a completely different discussion and it would be interesting in another thread. Otherwise, I am confident in my skill in negotiating, realizing what a "deal" is and managing my properties. Remember, I'm quality not quantity and my properties perform occupied and vacant. As far as rehab, my market is paint and carpet. I choose not to be in the construction business.
3. So in summing up you are saying 2% areas are not bid up because there is no profitability past that point as determined by the market.
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
I agree with your point about smaller rural towns in America that one can get in on the 2% rule, there are thousands of them from the Mississippi river to the east coast and pretty much anything in Rural Oaklahoma for example. Or rural farming towns that values are stagnant. And in the crash I hit the 2% rule myself in suburbs of Atlanta but no more with the hedge fund competition and of course with a highly organized mechanized capitalized business one can pluck out the gems.
The However is though that the average investor does not have those benefits if they are just starting out have limited capital can't just hop on a plane and spend a few weeks months checking all these place's out.. So they gravitate to what they can find on line and that usually leads to marketing people "TK companies etc etc. And as Chris Clothier mentioned being a premier TK company they don't sell anything that can get to 2% and most TK companies don't.. When you take that same metric and try to get 2% you end up square in the Hood in most of the big cities people would consider investing in.. They don't think to fly to a major hub then go find homes out in the country or little 30 to 50k satellite cities in the mid west and east coast.. Nor do they have the ability to source at wholesale etc. I know the locals do and do it all the time. But the locals are not going to pay more than what would derive a 2% rule or better thereby keeping values in check and not rising which was my point of the thread in the first place.
As you know there are many bad areas of CA having lived there like you did for years and me living in the bay area for 40 years I can tell you were they are.. But when you compare apples to apples these bad areas have values and rents substantially higher than many if not all bad areas across the country and real appreciation bad area or not.. and the flip side is these areas in the CA also depreciated in some cases tremendously like Atlanta did and other markets.
- Investor · NY · Member since 2014 · 74 posts · 49 votes12y
Originally posted by @J Scott:
- I'm better at finding good deals than you
- I'm better at negotiating prices with sellers than you
- I'm better at keeping rehab costs down than you
- I'm more efficient at management than you
Time to grab some popcorn!
- Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes12y
Just for the record, I'm getting just shy of 2% on the deal I am closing this month. To those saying 2% is outdated, I say, consider at least finding something else to invest in. Because when prices exceed rents, that is a frothy market. I go for the Buffet rule and look for investments I understand. Real Estate is not the only investment out there.
- Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes12y
Originally posted by @Account Closed:
Originally posted by @J Scott:
- I'm better at finding good deals than you
- I'm better at negotiating prices with sellers than you
- I'm better at keeping rehab costs down than you
- I'm more efficient at management than you
Time to grab some popcorn!
I have no problem with any of these statements. Read J Scott's blog and his books. The guy helped me find my backyard. I am seeking to know everything about it, and it is netting me near 2% cashflows.
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