2% rule

8 Replies

pardon my newness...could someone please explain the 2% rule in the BRRR deals. I have heard it now on a few podcast but have not had it explained. Thanks

Gross rents being at or over 2 percent of the total purchase price of your investment.

A 100k home would net >2000

Good luck finding such!!!

PS. Dont compromise your neighborhood, for a few dollars of theoretical gross rents

Remember the 2% rule is just a rule of thumb. In most places in the US, the 2% rule will not apply, as home prices have far excided the rent ratio.  

Using the above example:

Where do you know that one can buy a $1oo,ooo home and then rent it for $2000? You need to see what the rent to price ratio is for your area and use that as a rule of thumb insted of the 2% rule. 

You just need to look away from major cities, it is easy to find 2%!  All of my properties meet this rule.  PM me if you're interested and I can show you one thats not listed for sale.

It means the monthly rents need to equal 2% of the purchase price of the property.

This is a great way to eyeball if a property will cash flow or not and how much.

Originally posted by @Justin R. :

Gross rents being at or over 2 percent of the total purchase price of your investment.

A 100k home would net >2000

Good luck finding such!!!

PS. Dont compromise your neighborhood, for a few dollars of theoretical gross rents

You meant to say: A 100k home would GROSS ~2000 (per month) - not "net". Cheers...

Originally posted by @Mike Hanneman :

Remember the 2% rule is just a rule of thumb. In most places in the US, the 2% rule will not apply, as home prices have far excided the rent ratio.  

Using the above example:

Where do you know that one can buy a $1oo,ooo home and then rent it for $2000? You need to see what the rent to price ratio is for your area and use that as a rule of thumb insted of the 2% rule. 

Pssst - but there are PLENTY of investors grossing ~$800/m per door in mid-west markets where the buy price is ~$40k per door. Smart local investors lap that up all day long! Shhhhh...

What would at good ratio be for Riverside Ca where the median home value in Riverside is $335,600. and rent is 1700?

Originally posted by @Ruben Garcia :

What would at good ratio be for Riverside Ca where the median home value in Riverside is $335,600. and rent is 1700?

As far as I know, there is no "0.5% Rule" being promoted ANYWHERE for investors!

Seems to me: those homes are for owner occupiers - who might end up renting them out AFTER they've paid them off. If you have to borrow the usual 75%+ to buy them, they CANNOT cash flow positively. And if you've got 100% cash - why would you choose such a low cash-on-cash return?

(Basically, for a decent ratio, you'd need to get them for HALF price!) Welcome to BP....

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