Do you still use the 1% or 2% rule today?

[Andrew Curro]

Do you still use the 1% or 2% rule to evaluate investment properties? I will be looking for properties in capital region NY. Based on podcasts and zillow research, it seems that there are less properties that meet this rule nowadays. If you don't use these rules, what do you use as a quick and dirty screen for potential buys?

[Andrew Freed]

@Andrew Curro Good question! Nowadays, the 2% rule is unrealistic when it comes to buy and hold investing). At the end of the day, it is truly market specific on the level of cash flow you will receive. For instance, I purchase in Western Mass and I look for at least the 1% rule on my multi's out here, but that would be super unrealistic if looking at the Boston market. When it comes to properties, there is an inverse relationship between cash flow and appreciation. The more cash flow in a given area, the less appreciation and visa versa. For cash flowing markets, the 1%+ rule makes sense but for areas like Austin, Boston, Denver, you will not even get close to those numbers. However, appreciation will be on your side. To truly get a good understanding of what cash flow you should expect, you need to study your market.