2%+50% rule in Anchorage?

9 Replies

Hello Anchorage area investors,

I'm making an offer today on a duplex. It's in good shape, cute, in a nice neighborhood and in my price range. After watching the market for the last six months it seems like a good find. It doesn't however meet the 2% rule and barely makes the 60% rule. I understand these are rules of thumb rather than commandments one must follow, but I'm curious whether this is typical in Anchorage or perhaps the duplex isn't as good of a find as it appears on the surface. 



Hi Zak,

And welcome to the site. BP is such an awesome resource! 

As to your question: I think the 2% rule for Anchorage is very hard to do, and not critical for success (but does make it much easier!) here as long as you have good, realistic numbers for your expenses. What it can (IMO) do is tell you that a given property as an investment (ie: non owner occupied, 20%-min.-down) could produce a 15-20% ROI.

Which brings me to my first question: Is this strictly an investment or do you plan to occupy?

The 50% rule is much more valuable and critical (again In My Opinion), as we've self managed multi-family property here for the last 8 years and found it to be a fairly accurate predictor of actual expenses, once you include all the things people don't usually think about - Capital expenses, management, marketing, to name but a few.

The numbers you give lead me to believe this is an average (but reasonable) deal for a duplex in Anchorage and the reason it looked good initially is that this is the one of , if not THE, hottest segment of the market right now. This could be a good deal for you, or not, depending on your long term strategies.

Again, welcome! And don't forget to check out the local REI club - Real Estate Exchange or REX for short.

Scott thank you for the response!

The duplex is not strictly an investment. It's intended to be a home for my girlfriend and I while getting our first taste of landlording. In many ways it's a good find because it suits our needs well rather than what it offers as an investment. I don't think it's a hot investment, but we're not going to go underwater with it either. Long term our strategy is to live in it for a year, find another rental property, house hack, fully rent out the first, repeat. 

I welcome your info about the usefulness of the 2% and 50% rules in Anchorage, thanks! You mention you believe this is the/a hottest segment of the market right now. Can you elaborate? Clearly everything is expensive and prices have been climbing. Do you expect current oil prices and the states dependence on oil revenues to have a negative effect on our local economy? (What other factors are you looking at?) Less jobs, people leaving AK, less demand? I work on a drilling rig in Milne Point, my employer just signed a contract with Hilcorp to drill 9 wells. Although they have a lot more work for us they have been clear that the current price of oil does not support new wells and unless if prices change or we learn to drill wells in half the time we will be going back to working over old wells. That said I'm torn. There is a lot of work to be had. More drilling=more support jobs & revenue for Alaska economy. And I can't imagine how oil prices can be held down for much longer unless if artificially so. Whether we can agree on the validity of Peak Oil or not I think it's fair to say people believe the worlds oil supply is running low. If people believe it, as far as the market is concerned, it's true, right? 

I hope to see you at REX one night. I've been to one meeting in the past, but the last several months I've been up North and missed them.


Hi Zachary,

I am doing the same thing you are planning to do. If your duplex meets or beats 1% rent to purchase price, you're doing good. Keep in mind a lot of landlords don't charge market rent so, make sure to get your own number for market rent. When I bought my duplex, the 3 bed, 1.5 bath, 1 car garage unit was renting for 1500. This type of rental goes for 1800 to 1850 currently. 

The 50% rule does apply here. like @Scott Sewell , I've found this number to be true as well. A nice thing that I realized after factoring in vacancy for awhile, is that since you are living in one side, you only need to account for 1 unit worth of vacancy withholding. 

Some things I wish I had done, but didn't do: Gone with a 5-1 ARM rather than 30 year fixed to purchase the property. I had originally thought that AHFC interest rate reduction was the way to go, but I didn't realize a few things when getting started. Although interest rates are always pending as "going up", you probably won't keep the same financing as time goes on. Refinancing is the best way to get rid of PMI (private mortgage insurance). If you are buying with less than 20% down, I highly recommend going in with this strategy. I refinanced after 15 months and was able to (almost) eliminate PMI. Current payment dropped by $450 (the market saw a over 6% appreciation in this time period). I also wished I had waited to start the energy rebate program, and just budgeted to pay for the work. As a busy person (finishing my masters degree and working full time as an engineer), I just didn't have time to do the work. Additionally, the added value you get from doing all the work yourself (maybe an additional door and new windows) didn't really turn out to be the best use of my time (you can usually pay someone way less per hour than you make and they'll get it done faster too). My net expense after the rebate (increased 6 steps, new boiler, water heater, crawl space insulation and air sealing) was $500. Thats about it. Listen to all of the bigger pockets podcast if you want to learn a ton and audio format works okay for your learning style.

Hey Zak,

Always glad to help. If 'my opinion' is of any value. Remember, I'm just another voice in the wilderness.

That said, to clarify regarding the 'hottest market segment', I was referring to the duplex market. It's the only segment right now seeing substantial new construction, other than townhouses and government subsidized multi-family, and the prices/appreciation are reflecting that.

As to your other question regarding the economic future for the state, really I think that's anyone's guess. But my  $.02 is that I believe that oil prices will continue to stay low for the foreseeable future. With Iran coming back into play and the Saudi's wanting to eliminate as much competition as possible (ie: your employer?), I think AK is in for some lean years. The good part is we're a more diverse economy than we were back in the '80's, but oil is still the life blood of this state. As long as the State government doesn't totally freak out and cut the budget by 50% (or something like that) I think we (the state as a whole) can weather the storm. Remember, I posted the value of this info at the beginning of the paragraph.

But, if I'm correct, this scenario could present some buying opportunities in the next couple of years. Especially (I believe) in the commercial (5+) multi-family market, which saw an unrealistic run up in the last couple of years. 

So, my humble advise? I think your 'house hack' plan has merit, and is a good strategy, as long as you are careful not to get over extended/leveraged. CASH IS ALWAYS KING, especially in tough times!

The Seller has accepted our counter-offer, home inspection Friday!

@Scott Sewell , "hottest segment" of the market, gotcha. Yeah duplexes are highly sought after in Anchorage right now, because of that I didn't think I was too interested in owning one until this one came on the market. And I note your point of not over leveraging. There was a BP podcast a month or two back highlighting this mistake. I have to admit the past couple of months I haven't been paying as much attention to what's been going on in the world (been busy reading real estate books), but I recognize your point about Saudi and keeping prices low. If that's how things play out I welcome the opportunity to buy at lower prices!

@Connor Dunham , yesterday my girlfriend and I sat down and went over our budget together. We realized we can pay off this duplex in 10 years! She asked me why people our age aren't buying real estate, I read her your response to my posting and was happy to be able to point to someone who is. I hadn't considered a 5-1ARM...it's too late this go, but I see the advantage if you were to refinance. Our projected PMI was hard to swallow, but we also plan to refinance to eliminate that cost.

I appreciate you both sharing your knowledge with me, thank you for your words of advice!


All this information has been great to read and learn from.  Thanks for starting the discussion.

@Connor Dunham  I also wished I had waited to start the energy rebate program, and just budgeted to pay for the work. As a busy person (finishing my masters degree and working full time as an engineer), I just didn't have time to do the work. Additionally, the added value you get from doing all the work yourself (maybe an additional door and new windows) didn't really turn out to be the best use of my time (you can usually pay someone way less per hour than you make and they'll get it done faster too). My net expense after the rebate (increased 6 steps, new boiler, water heater, crawl space insulation and air sealing) was $500.

Connor, when you stated that you wished you had waited to start the energy rebate program, what did you mean?  I currently own a duplex here in Anchorage that I purchased in January.  I am currently in the process of starting the energy rebate program.  Any advice to get the best bang for my buck?  And how did you pick an energy rater/audit person (I can't remember the technical name right now)?

- Connor

Nice name by the way, lol.

@Connor Maloney After purchasing the property in January (of 2014), I had the energy Audit done in February. This starts the timer to complete the improvements and get a post-audit done. 18 months for the rebate or 12 months for the rebate and interest rate reduction if AHFC is financing your loan. So, I should have waited for two reasons: I wanted to do the work myself, but didn't budget the time correctly, which lead to me needing to save up funds to pay for the work, so, I should have waited until I had the funds to pay for at least half of the improvements before getting the audit (5k). Second reason was that after buying a house, you usually want to make it feel like home rather than a rental. This leads to you going around buying things like furniture and decor further putting a strain on your budget. 

As to getting the best bang for your buck - buy any big plumbing and heating items from supplyhouse.com, and have a plumber install them (stay away from the big guys). they take awhile to ship but are better than the price you get on parts after the contractor markup on parts. places like ferguson only sell to contractors (If you know one that can buy here great!). The contractors then mark up the product they buy at ferguson. Central plumbing and heating, even after their PFD sale, are super overpriced. For insulation - just go with the most basic materials. you can gain the most points for the least amount of money in this area. Always get three bids for each project.

finding energy rater - I just had them assign one. I've found angies list helpful to find contractors and read reviews.

@Connor Dunham, thanks for the info!  I really appreciate it.  This will give me a good base to start from.  

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