Is the 2% rule possible in Orlando FL?

14 Replies

I am new to REI and have been practicing analyzing deals to get a feel for my ideal price range and rent targets. I am getting no where close to the 2% rule and rarely even hitting 1%. I realize these are just rules of thumb, but I am wondering if this is typical for Orlando? What are other Orlando investors getting?

I am looking to buy a small multi-family property near downtown Orlando area - College Park, Delany Park, Thornton, the Milk District, Audubon Park etc. My logic is that these are places that I would want to live -  and I am the type of tenant I want to attract. (Mid to late twenties, working professional, able to pay rent but not quite ready to buy a home, I would feel comfortable managing them etc.). I also feel these are areas that would likely appreciate. 

I would love to hear from other local investors to know if I should hold out for a deal that comes close to the 2% rule, 1% rule or just throw these rules out the window for Orlando?

@Amie Lamb  I live west of Orlando but do invest in the Orlando area and finding rental properties that fill the 2% rentals are very very hard to find even a 1% is difficult to find but they are out there. Please note that The 1% and 2% rule should not be called a rule but used as a guide line

@Amie Lamb

From what I've seen in Orlando, certainly the 2% rule (or close) does work. However, it's not a neat little package like some other places in the country. Elsewhere, you might find places that just need a coat of paint and they are rent-ready and they satisfy the 2% rule. However, in Orlando, it seems like you need to make your own value. For instance, if you find a property that is in an area that rents for $1,000 a month, and it is asking $40,000, it will likely need at least $20,000 in rehab. Not quite the 2% rule, but it is close (1.7%).

Because of this, I've been looking in cities around Orlando where prices are still suppressed. In those areas, I see 2% houses much more often.

It also seems that the best deals are off-market. For instance, I have had someone interested in selling me a duplex pulling in $1,600 a month in rent for $80,000 in the UCF area! It doesn't sound like it will actually go through after they decided they just wanted the cash flow, but the deal actually was promising considering they JUST sold another one of their duplexes with the same figures not even a month ago. If I could have pulled that off, it would have satisfied the 2% rule because it was already rented and needed no rehab. THOSE are the deals to look for... just keep networking and don't be afraid to ask people who own rental properties if they are interested in selling.

Hope this helps...

@Richard Ellis  

@Richard Ellis thank you so much for your reply. It is nice to know these properties are out there!! I have toyed with the idea of looking for multi families in the UCF area, but many investors have warned against renting to college students. Is that your primary focus? Sounds like you have found success using that strategy. Do you think it's a good area for a first time owner?

I like the idea of making your own value and finding deal that are not on the market - I will keep these in mind. I am open to some rehabbing, floors, carpets, appliances and paint of course. I will keep up the networking and will definitely keep asking owners if they are interested in selling. Thanks for the tips!

Hey @Amie Lamb ,

The 2% rule is possible in Orlando, but, you would have to get a KILLER deal to achieve the 2% rule in the areas you mentioned.

I just did a quick analysis for those zip codes (32801, 32803, 32804, 32806), excluding condos (aka cash flow killers)

You're looking at a median sales price of $241,000 over the last 6 months.  

Now for the rentals:

Median leased price of $1550, so in those areas it's closer to the .6% rule, not great for cash flow.

That being said, there absolutely deals to be found in those areas, they're just harder to find.

@Richard Ellis is on the right track.  The outlying areas are where you're going to get closer to the 2% rule. 

I'm just finishing up renovations on a duplex in Sanford.  We'll be all in at 78k (48k purchase/30k rehab) and each side should rent for 750.  So pretty darn close to the 2% rule.

@Andrew Davis , wow, thanks so much for that awesome analysis! I am definitely a numbers girl and love seeing it laid out this way. How did you pull those numbers? It is looking like I will need to consider taking my search a little farther from downtown Orlando as you and @Richard Ellis  suggest. I just feel more comfortable near downtown Orlando because I know the market here pretty well. I will expand my search area while keeping my eye out for that KILLER deal though. :)

Great topic @Amie Lamb . For the past couple of months, I've been trying to figure out if it even was possible to achieve more 1% in the Orlando area. I've been assuming the more desirable areas in Seminole county would have higher vacancy rates on account that these areas are where a lot folks try to buy their first home.

@Andrew Davis

Forgive the noob question: where are you getting those awesome analysis tables from? Do you have to be an agent to get access?

This topic seems to be covered a lot. I would have to say that you would be very hard pressed to find a decent rental in a class b-c type neighborhood in Downtown Orlando and get 2%. If you are looking for that type of return in this market I would look in Sanford, Volusia, and certain parts of Lake County. 

I am in negotiations with a property right now that looks like this: $45K purchase is less than $4K (carpet and paint, maybe appliances) and the median rent is $1000 a month. 

I'd say finding a 2% in a decent area is highly most areas these days (minus the ghettos), much less somewhere as nice as Orlando. Plus FL taxes and insurance are always higher, so it's unlikely. I'd be impressed to even hit the 1% rule, actually. But positive cash flow is positive cash flow, so if you at least have that going for you, check it out.

@amie lamb I've been going through the same struggle the last few months. I'm just getting started and looking for my first deal. I don't want to start out with a bad investments to kick things off. I've pretty much given up on the 1-2% at this point and focused on things like ROI, Cash Flow, and Cap.

In those highly desirable areas I think it's going to be hard to find a deal without an inside scoop.  My brother picked up a duplex in College Park but only because his coworker wanted to sell it off market.  GL!

@Amie Lamb & @Felix Ortiz the good old MLS. There are a lot of great data tools on there, many of which I'm sure I have yet to even discover.

Felix, as far as I know you do need MLS access to pull those reports. Lucky for you, I have it! If you ever need anything like that, let me know.

@Doug Royce correct.  On market deals are few and far between these days.  Like @Ali Boone said, Orlando is very hot right now (literally and figuratively... ba-dum-ching) and the best deals are going to be found primarily through working directly with sellers.

The % rules are just guidelines.  What's far more important is your strategy, and not losing money of course.  There will be a sweet spot for every investor depending on their personality, risk tolerance, background and financial goals.

Mine, at the moment, is cash flow, and I'm willing to purchase in those B-C neighborhoods to achieve it.  At some point, that will change and I'll be more interested in appreciation, solid returns and capital preservation.

Thank you everyone for your comments!

I see what everyone is saying about focusing on cash flow, cap, ROI etc. ...But it looks like these usually correlate with the 1 or 2% rule based on the properties I have been analyzing.

I am starting to realize I need to A. connect with off market distressed sellers and/or B. completely change my target buying area. 

Either way, your comments have been very helpful on defining more REALISTIC buying criteria. 

Hello @Amie Lamb, I would not necessarily shy away from Students. I've had student in one of my properties very close to Valencia College, and yes they can trash the place, but what is trash really? If you have tile floor, the rest is paper (drywall). You can put in some preventive measures like a built-in cleaning lady (monthly) who also acts as your "spy" ;-)

My student house was rented for 4 years, so yes when they moved out it was the equivalent of 4 years worth of move-in & move-out by multiple tenants. 

I will tell you that students (in my experience) pay the rent on time, every month! Why because if there are 3 or 4 of them, the rent per person is cheap! so its easy, besides sometimes its Mom/Dad that pays it. They are also Respectful, since most of them are younger (I guess that depends how old you are? Don't answer that) 

You wan the 2% student housing is possible! 

Good luck,

Javier T.

Originally posted by @Javier Tejera :

Hello @Amie Lamb,

I will tell you that students (in my experience) pay the rent on time, every month! Why because if there are 3 or 4 of them, the rent per person is cheap! so its easy, besides sometimes its Mom/Dad that pays it. 

You wan the 2% student housing is possible! 

Good luck,

Javier T.

Agreed. I used to work in student housing up in Tallahassee. In addition to part time jobs and (on occasion) parents with deep pockets, many students have access to student loans, scholarships, Pell grants and other financial aid. I've even worked out a deferred rent payment on condition that students would pay a few months advanced rent once they received their grants. You do have to watch out for students who party and are rough on the unit but that's why regular inspections are encouraged.