Are there any markets left where the 2% rule is still alive?

24 Replies

I'm looking for an solid working class areas that have 5+ rated schools. I'm currently in South Florida and the deals have been drying up. I'm looking to do buy and holds.

Very tough to get A or B class rents with the 2% rule down here in South Florida.. You can potentially get close to it in the C &D areas but that all depends on the risk level you are willing to take. I would look up north- Around Fort Pierce and surrounding areas as I'm sure you can get the 2% if not higher there.. Good Luck!

I meant nationwide not just here in florida.

Originally posted by @Jay Hinrichs:

@Benjamin Kanevsky 

  2% and top schools is a disconnect  the majority of the time.

 Well 5 rated schools I meant on a scale of 10 on zillow. That would be considered middle of the pack?

The 1% and 2% rules are geographically restrictive.  I buy and hold in Boston where I get .5%, .67%, .8%, and .8%.   

Originally posted by @Eric Taylor:

The 1% and 2% rules are geographically restrictive.  I buy and hold in Boston where I get .5%, .67%, .8%, and .8%.   

 I'm originally from Boston. They have some of the worst landlord laws in the country. Why would you ever invest there?

Why the 2% rule?  Might be better to get a little more sophisticated with your model, to ferret deals that may not hit the 2% rule but are actually better.

Would you rather a $30k place that rented for $600 per month, or a $150k place that rents for $2300?  Might not hit the 2% rule, but me I will take the latter every day all day.

John D., Palm Vacation Rentals | [email protected] | 4155195039

We will see Benjamin.  But, I do like it when people plop down 12K to 15K just to initially get into a rental.  

@Eric Taylor  

I totally agree we do awesome with those numbers (although we are at the higher end that you mentioned). We worked with class A properties. Though our margins are lower we have almost no vacancy, no property management and low expenses. Even our property tax and insurance are low.

John D.
A $30k property would be $6k down. The $150k property is $30k down.

$6k makes you $600/month.
$30k makes you $2300/month.

I would definitely choose (and do choose) the $30k property. Your risk is spread out, one vacancy doesn't hurt as much and you're making more money each month.

On a side note, you see $150k houses renting for $2300?

Originally posted by @Benjamin Kanevsky:
Originally posted by @Eric Taylor:

The 1% and 2% rules are geographically restrictive.  I buy and hold in Boston where I get .5%, .67%, .8%, and .8%.   

 I'm originally from Boston. They have some of the worst landlord laws in the country. Why would you ever invest there?

 Eric, you're from Mission TX?  It cash flows a lot better than Boston, doesn't it?  Do you invest there, too?  

@Brandon Hopkins  Add in expenses and those numbers will change.  A lot.  Your variable cost of maintenance, capex, property management, and occupancy are vastly different.  So is the headache factor and your return on time invested.

John D., Palm Vacation Rentals | [email protected] | 4155195039

This post has been removed.

Originally posted by @Jon Klaus:
Originally posted by @Benjamin Kanevsky:
Originally posted by @Eric Taylor:

The 1% and 2% rules are geographically restrictive.  I buy and hold in Boston where I get .5%, .67%, .8%, and .8%.   

 I'm originally from Boston. They have some of the worst landlord laws in the country. Why would you ever invest there?

 Eric, you're from Mission TX?  It cash flows a lot better than Boston, doesn't it?  Do you invest there, too?  

 Mission is a bit tougher to find a solid rental clientele.  Elevated property taxes make it a bit cumbersome as well.  I like Boston because of the cash flow and also the anticipated appreciation.

@Brandon Hopkins  ,

$6k makes you $600/month. 

$30k makes you $2300/month.

After closing costs, expenses and debt service, it could well be:

$9k nets you $100/mo = 13% CoC return, on average, with a lot of risk and headaches.

$33k nets you $500/mo = $18% CoC return, with relatively low volatility.

Thank you @Michael D.  

 Therein lies the power of the CoCr and related, as compared to a more simplistic model.  I will typically model the following to start to get a feel for things.  The third column helps show forced appreciation or the ability to buy below market value.

est cashflow (monthly)
Cash on Cash return (annual)

CoCr y1 incl appreciation or variance in value (minus 6% realtor fee)

John D., Palm Vacation Rentals | [email protected] | 4155195039

Originally posted by @Benjamin Kanevsky:
I'm looking for an solid working class areas that have 5+ rated schools. I'm currently in South Florida and the deals have been drying up. I'm looking to do buy and holds.

Hi Benjamin,

Look into Ohio, we are swimming in great numbers here lol

Michigan has decent figures and so does Indiana.

Just my opinion.

Thanks

Medium list n sell logo designEngelo Rumora, List'n Sell Realty | [email protected] | 419 740 6999 | https://agentscomefirst.com/ | Podcast Guest on Show #89

Originally posted by @Eric Taylor:

The 1% and 2% rules are geographically restrictive.  I buy and hold in Boston where I get .5%, .67%, .8%, and .8%.   

 Is it possible to cash flow at .5% or are you banking on appreciation?

Medium logo 5545John Horner, Core Developments LLC | [email protected] | 614‑664‑3174 | http://johnbuyshousesohio.com/

@Benjamin Kanevsky I would say the 2% rule is alive and well in the Central Florida area. That being said, you'll have a hard time getting it at retail (MLS, working with a realtor that does not specialize in investments).

I am daily walking neighborhoods here, specifically looking for multi-family properties that don't look well cared for.  Well it may not hit exactly 2%, if you can get good terms, seller financing, etc...  Then the overall numbers may work out well for you.  

Good luck!

Noob question here (and thanks in advance to anyone who cares to answer): On what basis are properties classified in to class A, B, and C? I've seen that lingo around but never really understood what it meant exactly.

John. Great point my other properties cash flow very well. This .5 one was a well situated, nicely upgraded 3br and 1 bath in the south end. It rented for 3200/mo after being posted for 1 day. I will increase the rent by 200/mo for at least the next 4 years. Now I net 300 per month but expect to net 700 to 1000 over time. Will keep this one for life.

Originally posted by @Hieu Luu:

Noob question here (and thanks in advance to anyone who cares to answer): On what basis are properties classified in to class A, B, and C? I've seen that lingo around but never really understood what it meant exactly.

 This is somewhat subjective.  A is basically the best area, B the next best area, C the third best area.  Universally stated is that a "D" area is basically what is known as a "warzone" --> high crime, boarded up buildings, very low class tenants, etc.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you