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Updated almost 10 years ago on . Most recent reply

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Andrew Zwicker
  • Salem, OR
1
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10
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Does the 2% rule apply when equity gain is involved?

Andrew Zwicker
  • Salem, OR
Posted

I am purchasing a small house for 70k that is worth 110k at current market value.

The 2% rule suggests that I need to rent the house for $1,400 per month. Since I am purchasing the house for 63% of the market value, it seems that buying it would be a good choice to begin with. 

So in math terms, since the house has 40k in value after the purchase and the 2% rule is based off of the house grossing the purchase price in 50 months, would I take the equity that I have in the house (40,000) and divide it by 50 then add it to my rental rate? This would equate to $1,550 per month over the course of 50 months which fits into the 2% rule...

I ask this because, in my opinion, this is a pretty good deal for me and I would like to use a simple mathematical metric for evaluating purchases like this in the future.

Does anyone have an idea on how I could evaluate this correctly?

Most Popular Reply

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342
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Michael J.
  • Rental Property Investor
  • Louisville, KY
123
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342
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Michael J.
  • Rental Property Investor
  • Louisville, KY
Replied
IMO I am mor concerned about the rent I can get in relation to my all in cost. If I pay 50k all in for a house that gets 1k in rent and is worth 100k I am happy as can be.

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