Rental Property Investor · Encino, CA · Member since 2016 · 324 posts · 178 votes
Greetings,
I live here in the Los Angeles market and by no means expect to find any investment close to the 2% rule both on and off market. I have tried researching recent sales and cross matched potential rents in other markets and am not finding what I am looking for. BP show me proof.
If possible, can anyone provide an address of an investment (all inclusive) that they acquired and currently rent that met the 2% rule (or somewhat close)? Any market will do.
I understand if this is too sensitive to share but I think it would be helpful to show a real life example.
Investor · Fairfax, VA · Member since 2015 · 239 posts · 90 votes
9y
Nice question. In my experience on the east coast, this varies a lot depending on the local areas and we never see 2% unless it is off market and highly distressed. My firm actually does this analysis all the time, automated for our clients. In the Washington DC area, we do the math on roughly hundreds per day. Based on what I see:
DC: The very best are at 0.8%, unless they need tons of repairs or are Class C/ D. Class B are generally 0.7 or worse.
Northern Virginia: In NOVA- in 2015 we could get 0.8% occasionally, but recently, in the past year has been more like 0.7% for the best, unless they are far out exurbs. In Fairfax County for example, the best I see (discounting for condo fees) is roughly 0.75%. I will see rehabs at 1% sometimes farther out, which are good for investors with contracting experience or with a good GC.
Maryland: Very county dependent. The best you ever see regularly is 0.75% in Montgomery County. PG is more varied- it really depends on the area. You can get 1% or more in some markets (Class C/D) and in Anne Arundel you can get over 1%. But the vacancy/ collection loss risk can eat up these "paper profits" pretty fast, along with the older housing stock issues in general... which just run higher on maint.
Curious to see who, if anyone, hits 2%. Would be VERY impressed if it's not Class C/D.
Isn't the "2% rule" meant for calculating a good gross income, not net? I think all of you arguing that 2% is impossible because of capEx and repairs, and PM, etc are misunderstanding the rule. A "2%" property would be getting about 1% returns net (assuming the 50% rule).
@Turner Monroe At the end of the day the 2% rule is only one of multiple metrics used to determine a good deal. My current target on my SFR's is a cash flow of $200 to $300 a door after PM, Repairs, CapEx, Tax, Insurance, Vacancy and Debt Service. The 2% rule helps me get there. I have found keeping an eye on the fixed cost like taxes are key too. Comparing two properties hitting the 2% rule on paper, one a C class the other B class, the B class properties taxes are nearly double the C class. That was a significant impact to the target cash flow. Meanwhile you would like to think the B property will have better long term appreciation than the C property. I bought the C because I wanted the cash flow. I have planned for zero appreciation on that property. I also own A and B properties where I expect to realize conservative appreciation over time but those are 1% RTV.