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?
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.
A lot depends on the market. I just purchased a 2400sqrft duplex in Central Texas for $85k. Our renovation budget is $60,000. Once finished we will have 4BR/2BA on each side. Projected rents are $2400 total, tenants pay all utilities. That will make a 1.65% deal. ARV $225,000. Cashout refinance $169k and go buy another one. BRRRR....
Last one I saw 2 years ago this January I bought. It was 18 units middle of no where, HUD housing. It shook out to about 2.3% unbelievable deal for all of its quirks. It took me 10 months to close I even had to get an attorney to be approved to hold a HUD complex. Maybe you will see one in my area every 5 years kind of like a 4 leaf clover more then a unicorn.
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%. ;-)
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)
2% happens but it always comes with a lot of deferred maintenance and much reinvestment in near term.
Contenders, no problem there, look up my listings here in MN, I have a variety of listed and non-listed that range 1% - 1.75% on highest side. I have no less than 1-4 at any given day.
I specialize in market analysis, that seems to be what others are missing, locating the correct market for the deals wanted vs going into pre-selected market saying "ok, where is xyz deal????". It's like going to a fish market looking for a great ribeye.
What I have on the MLS is somewhat representative to the non-listed deals I run through. By non-listed I mean deals I match to a buyer before they can even hit the mls.
If you want 2% and 3% rule come to Detroit. I fully agree with what Todd said with regards to needing a lot of muscle on the ground to help deliver that 2% and 3% rule to investors month in and month out. I also liked what he said about appreciation but that being said appreciation is becoming more real especially after it was announced in Feb that Detroit had some of the highest value increases its seen in the past 20 years. Besides, as our investor from Florida just said to my husband which is what we’ve been saying for months. “It’s amazing there are rehabs everywhere, like on every street!” Speaking of Florida, Detroit is what Florida was 5-7 years ago! But still at the end of the day investors need to keep their eye on the prize here which is cash flow cash flow cash flow. Outside of the boots on the ground team that include a property management branch/ in-house PM operation obviously another secret ingredient in being able to provide to one’s out of state investors is the art of being able to max out the section 8 rent and have the government pay 100% of it! Without giving away too much when it comes to the art of section 8, Section 8 rent it is not only Covid proof but it is literally guaranteed rent paid by the government and the benefits for out of state investors are priceless. GO DETROIT GO GO!
@Isaura Orellana while a few of your posts had some crazy numbers that didn’t make sense, I’m with you on Detroit. I don’t invest there, but there are many similar markets where you can cash flow crazy! And you can get decent appreciation, but not crazy. PM means absolutely everything and section 8 is a sweet spot that many turn from. But done right, you can kill it! Now, did you really compare Detroit to Florida??????lol! Don’t lose me, I was starting to be a fan
@Isaura Orellana while a few of your posts had some crazy numbers that didn’t make sense, I’m with you on Detroit. I don’t invest there, but there are many similar markets where you can cash flow crazy! And you can get decent appreciation, but not crazy. PM means absolutely everything and section 8 is a sweet spot that many turn from. But done right, you can kill it! Now, did you really compare Detroit to Florida??????lol! Don’t lose me, I was starting to be a fan
I lived in Florida for 7 years, my family is still there. I've compared it to Detroit and rightly so. In fact, I wouldn't live in Florida if you paid me. It's ugly, too hot and muggy, and unless you've got money to spend spend spend, it's incredibly overrated. Not to mention that the jokes you hear about how crazy people are, they're based on fact. My mom loves it and talks about all the things there are to do, until I remind her that it's because they have the money to live in a nice area and do those things. Lol
@Jerome Jewell Lots of activity going with MFR. It's still a seller market.
@Dhrupal Patel We've invested in Small MFR and SFR. This city was built in early 1900s. You can find all kinds of properties here. From A+ buildings to the building that require full gut rehab. Most properties require some level of rehab. I've reliable team members that handle that for us.
Currently own a duplex just outside Dayton, OH that we bought for 72k, spent about 20k in rehab (over a year or so) and now rent it for $1535 per month gross. It's class C so that has its issues sometimes, but overall the juice has been worth the squeeze.
@Maria D'Aura, Ok your wish is my command. Below are two examples where I believe you could make 2% work. I too thought like you when I read about the 2% rule. But hey, although it sounds great it is hard to make work. 2% requires you to take on a lot of risk. Best if you live in the community, have lots of rental experience, you are handy at repairs and lastly YOU ARE MENTALLY TOUGH!
You will be challenged with the quality of the property, the quality of the tenant and the lack of demand for your product. Other than that it is a piece of cake!
Usually you find 2% in the north where population is decreasing. By the time you count in vacancy and maintenance not to mention frustration your 2% disappears. However, if I had those properties I would look into Section 8 housing as I do think you could make it a go using Section 8. It is for some people but for me I will be happy with 1%. Cheers.
Hi Todd, all the numbers I’ve ever posted we have delivered on to our clients. And we have lots more where that came from. I would post a lot more numbers but I don’t want to get into to much self promotion but feel free to shoot me your email and Ill add you to our cash buyers list. There you can see bucket loads of our sold properties with more of those mouth watering numbers that you cant even fathom. Just b/c most can’t figure out on there own how to max out section 8 as we do or aren’t able to operate with the same high level of efficiency here in Detroit as we do you shouldn't say they don’t make sense. Are you an expert on Detroit Section 8 rental properties as we are? Do you have 7 crews working full time 12 hrs a day or an enormous boots on the ground team as we do? I don’t think so. When’s the last time you were knee deep in Detroit like we are? If you were here and knew what you were doing here you would recognize that Detroit is very much like what Florida was 7 years ago never mind the best rent to value ratio on the planet. Four of our Florida clients have been here visiting us in just the past two weeks alone. There is a reason investors from all over the country and world are flocking to Detroit like almost never before. There is a reason we are selling and buying a 1/2 dozen properties week in and week out lately. Don’t shoot the messenger Todd. I’m not kidding when I say that absolutely everywhere you turn there is a rehab in progress. You should seriously take a trip out here and talk to the experts and brush up on your Detroit. Or not. Your call. Anyways.. GO DETROIT GOOOOO!
You will not find one in Cali. I'm the financing side of the industry, and CA has the lowest DSCR for properties in the country, simply because property values rise more than rent values. The rent market can rise 3%, but the property value rise 5.5%. Overtime, this makes a huge difference.
It also doesn't help that property taxes can be high there.
I see them all the time. But they are usually in neighborhoods that are not so nice. So basically, even tho it hits the 2% rule, its not something that I'd buy. DM me and I'll forward you the next one I see.
I purchased an off-market duplex last year in Detroit. I blogged about it a few days ago. Purchase price was $64k including the wholesaler's fee. The bottom unit was fully renovated and had been owner occupied. We put ~$6k into the upper unit, so we're into it for about $70k total.
The bottom is rented at $800/mo and top is $850/mo. We'll likely push the bottom unit up to $850 when the lease comes due in June. So $1,650/mo total right now on $70k invested is 2.35%
The building is in a C-class neighborhood. My tenants are great and make $50k-$60k respectively. They pay early or on-time, and I never have to hassle them for rent or water reimbursement.
Admittedly, even just a year later, it's hard to find deals like this. Values have been going up in the area and now you've got people trying to get $50k for full rehab duplexes on the same street.
@Maria D'Aura 2% Rule Property can certainly be found in Cleveland. You really need to look carefully. My STRONG advice would be to look for a duplex.....not a triplex or fourplex.....but a duplex in a C Neighborhood in Cleveland. Also,....and if you can do this it will be a cherry on top for guaranteed rent...Put a Section 8 Tenant in the property. As other posters have said, you may initially need to put in some repairs for deferred maintenance, but once it gets going it gets going :-)
You should reach out to @David Leggett about this IF YOU ARE SERIOUS. He is on the ground in Cleveland, he's a Realtor and he actually helped place tenants in a number of my rentals out there.
I think it really comes down to where you are at. I have a couple quads and a 6 unit apartment on the market right now and they are right around 1% but getting them to 2% would be nearly impossible because of their location. There is nothing wrong with them but the socioeconomic area would not support 2% like an area right beside the D1 university would.
@Maria D'Aura 2% Rule Property can certainly be found in Cleveland. You really need to look carefully. My STRONG advice would be to look for a duplex.....not a triplex or fourplex.....but a duplex in a C Neighborhood in Cleveland. Also,....and if you can do this it will be a cherry on top for guaranteed rent...Put a Section 8 Tenant in the property. As other posters have said, you may initially need to put in some repairs for deferred maintenance, but once it gets going it gets going :-)
You should reach out to @David Leggett about this IF YOU ARE SERIOUS. He is on the ground in Cleveland, he's a Realtor and he actually helped place tenants in a number of my rentals out there.