show me a multi-family meeting 2% rule

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show me a multi-family meeting 2% rule

Maria D'Aura
Real Estate Agent · Livermore, CA · Member since 2016 · 173 posts · 74 votes

I've been looking at multi-family properties where I live in CA and out of state. I haven't found a single one listed for sale that meets the 2% rule. Do they exist? I'd love a link to one of these unicorns just to see it's a real thing. Or maybe I'm missing something? 

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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y

Are you looking for a quality property in a good location with appreciation potential or are you looking for high cash flow? 

You can probably find 2% properties in places like Detroit or Cleveland, but keep in mind both those cities have seen significant population declines over the last 30 years. Less demand for housing drives prices down, which drives rental yields higher. Many of these properties are in rough neighborhoods and the properties are in disrepair. You are basically maintaining them at minimal level and sucking the cash flow. If that is what you are looking for, it can be found.

If you are looking for high quality properties in growing locations that meet the 2% rule, you are looking for a needle in a haystack.

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  • Constance Grandelli
    Realtor · KINGSPORT, TN · Member since 2015 · 96 posts · 34 votes
    6y

    Hi Maria,

    In my experience 1% is achievable. I did manage to buy & rehab a property, then rent it for more than 1%.  I've begun to change my way of thinking:  how much do I have in it, or how much is the mortgage? What is the acceptable "profit margin" to me?  Other things to consider: Can the rents be increased?  What type of appreciation is it? Is it "hackable"?  Often there are more things to be considered than just the numbers.  Haven't seen any unicorns.  :0)

    6Reply
  • Maria D'Aura
    OP
    Real Estate Agent · Livermore, CA · Member since 2016 · 173 posts · 74 votes
    6y
    Thanks, Constance. I should have also included "show me one that could be a 2% contender". I haven't seen one of those either. Lately I've been happy to find one near 1%. ;-) 


    Originally posted by @Constance Grandelli:

    Hi Maria,

    In my experience 1% is achievable. I did manage to buy & rehab a property, then rent it for more than 1%.  I've begun to change my way of thinking:  how much do I have in it, or how much is the mortgage? What is the acceptable "profit margin" to me?  Other things to consider: Can the rents be increased?  What type of appreciation is it? Is it "hackable"?  Often there are more things to be considered than just the numbers.  Haven't seen any unicorns.  :0)

    1Reply
  • Mark H. Porter
    Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
    6y

    At this stage of the game I skip right over that and get interested in a cap and then it’s all about pre-tax cash flow.

    3Reply
  • Constance Grandelli
    Realtor · KINGSPORT, TN · Member since 2015 · 96 posts · 34 votes
    6y

    I bought a gutted duplex for $28.5k, put in about $30k, rented for a total of $1300.  So that was pretty good. But, that was like a flip-ental.  LOL!  Sold it with leases and property manager in place for $110k.

    4Reply
  • Steve K.
    Specialist · PA · Member since 2016 · 143 posts · 71 votes
    6y

    @Maria D'Aura Yes, they do exist in 5 Miles from where I live. Reading, PA I've started to get comfortable investing there. You must have heard of it. 

    3Reply
  • Brad Hess
    New to Real Estate · Reading, PA · Member since 2020 · 1 post · 1 vote
    6y

    @Steve K.  In the city of Reading or suburbs?

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Yield is a function of risk. If you can not find a particularly yield, look at higher risk properties and higher risk markets. The higher and higher the risk, the higher you will see the yield. 

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    12Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Buy off market deals that have value add rehab potential. When your done rehabbing and stabilizing you’ll be above 2% if things go well. I.e. make your own deals don’t wait around for someone to hand it to you.

    4Reply
  • Nicholas U.Pro Member
    Member since 2020 · 65 posts · 44 votes
    6y

    I try to get something like 1.15%-1.25%.  Gives a little extra flexibility.  California is a different beast than pretty much everywhere else so you need to change your expectations for there.  

    3Reply
  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    They rarely exist on paper unless it's in a C/D area but there's good opportunities once you stablize the property and update the rent roll. I just found a client a property that met 1.75% rule in a town adjacent to Boston so those small gems do exist if you look hard enough. 

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  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Marc Rice is right, the midwest, specifically Columbus is a great place to invest. Booming business' with happy employees. Not too mention Ohio was rated one of the most fashionable areas in the US!

    My second deal I purchased was a 2%, and I got it on the MLS.

    2Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    There's this lady on this website claiming her Detroit investors are getting 3% or better.  I am sure she will chime in soon.   

    2Reply
  • Zeke Liston
    Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    Sure, it's possible to find the 2% rule. It's really tough in the Columbus, OH market but it's possible @Maria D'Aura

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    Are you looking for a quality property in a good location with appreciation potential or are you looking for high cash flow? 

    You can probably find 2% properties in places like Detroit or Cleveland, but keep in mind both those cities have seen significant population declines over the last 30 years. Less demand for housing drives prices down, which drives rental yields higher. Many of these properties are in rough neighborhoods and the properties are in disrepair. You are basically maintaining them at minimal level and sucking the cash flow. If that is what you are looking for, it can be found.

    If you are looking for high quality properties in growing locations that meet the 2% rule, you are looking for a needle in a haystack.

    14Reply
  • Andrew Weiner
    Property Manager · Cleveland, OH · Member since 2020 · 268 posts · 315 votes
    6y

    I think that @Joe Splitrock hit the nail on the head.  As local investors who are on the ground scouring everyday we can sometimes find one here or there, as a long distance investor it would be very hard to find one without doing significant rehab.  I think that 1.5% is achievable but still hard to find, you may see more inventory open up as foreclosures and evictions pick up with expiring federal moratoriums and mortgage payment deferrals.  

    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Russell Brazil:

    Yield is a function of risk. If you can not find a particularly yield, look at higher risk properties and higher risk markets. The higher and higher the risk, the higher you will see the yield. 

    Yield is an interesting choice of wording.  If it is to imply cash flow, then I am not in agreement (I virtually always agree with Russell's post and think he has a knack for great succinct responses). If these high risk properties are owned and managed by capable, experienced staff they could produce a high cash flow.  I think for many an investor, these properties will produce cash flow that is lower than properties with lower rent to cost ratios.

    In my area, I avoid the areas with the highest rent to value ratio.  Too much work, too much risk, and typically produces a lower cash flow than those with slightly worse rent to value ratio.

    The rent to value ratio does not dictate the cash flow.  I find at the extreme high range, it more predicts the level of effort involved than the cash flow.

    Good luck to the OP in finding the unicorn, but beware the unicorn may not be what you truly seek.

    2Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    6y
    Originally posted by @Maria D'Aura:

    I've been looking at multi-family properties where I live in CA and out of state. I haven't found a single one listed for sale that meets the 2% rule. Do they exist? I'd love a link to one of these unicorns just to see it's a real thing. Or maybe I'm missing something? 

    If you want to find a deal that meets the 2% rule in Columbus, Ohio you need to throw out the listing price out and write offers based on the number that works for you.

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    4Reply
  • Chris Wilson
    Coupeville, WA · Member since 2016 · 93 posts · 73 votes
    6y

    Newbie, still learning so I had to look the rule up. Thanks for helping me find educational content!

    https://www.biggerpockets.com/blog/2-percent-rule

    1Reply
  • Jerome Jewell
    Wholesaler · ….. · Member since 2016 · 43 posts · 13 votes
    6y

    @Steve K. I am close to that area I am in jersey . How is the muli families out there at the moment ??

    3Reply
  • Dhrupal Patel
    Rental Property Investor · Member since 2020 · 9 posts · 5 votes
    6y

    @Steve K. What kind of homes you invest in reading? Does that involve Rehab at all?

    Thanks for sharing your knowledge.

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    6y
    Originally posted by @Darius Ogloza:

    There's this lady on this website claiming her Detroit investors are getting 3% or better.  I am sure she will chime in soon.   

     Maybe you should tag her :-)

    0Reply
  • Todd Pultz
    Rental Property Investor · Dayton, OH · Member since 2019 · 293 posts · 440 votes
    6y

    @Maria D'Aura the Midwest is filled with these properties but you have to be ok with a C area. These listings meeting the 2% rule come out every single day here. C areas can be challenging for the out of state investor and you have to be engaged with the right Property management team. There are very few PM’s that can handle true C areas

    If you have the wrong PM, your 2% rule means absolutely nothing because you will get eaten up with vacancies and maintenances costs.

    I’ve never bought a property here that did not meet the 2% rule and most are closer to 3%.

    Now, you have to understand that your not going to get the high appreciation in these markets, but you will also not get the low down swing. You will be in a very stable market that cash flows! If you believe cash flow is king, the Midwest can help you achieve that if you stay away from the bigger cities, but if your looking for higher appreciation it may not be the market for you.

    I know the gal brags about detroit and quiet honestly the numbers don’t add up in some of the post and I have called those out. But.....I’m trying to sell you absolutely nothing and will tell you that you can find 3-3.5% cash flowing properties often here in Dayton, OH.

    Good luck to you

    4Reply
  • Sakib J.
    Investor · Los Angeles, CA · Member since 2020 · 154 posts · 32 votes
    6y

    @Andrew Weiner Hi Andrew. How many properties do you manage in your portfolio? I am seeking. Message me pls.

    0Reply
  • Patrick McGrath
    Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
    6y

    @Maria D'Aura

    We have bought 2 properties that were at or below 1% at purchase. After rehab and placing new tenants they are now 1.5% + and cash flow very nicely. Deals are out there, just have to have the vision.

    4Reply
  • David Alvarado
    Investor · Silver Spring, MD · Member since 2016 · 92 posts · 42 votes
    6y

    @Maria D'Aura

    I just sold two triplexes in Baltimore City that were 2% deals - all in (with rehab) of $260K, and rents around $6K - $6200/mo on the conservative side. Baltimore is a very diverse city and these were located in a solid C area - not a rough area; close to the county line which typically demands higher prices. The deals are out there, but highly market and risk dependent.

    1Reply
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