2% Rule Possible for Multifamily with commercial financing?

Question

Ive listened to the first 50 episodes of BP and a It seems investors shoot for the 2% rule. Ive been looking at commercial multifamily (5-15) units and it seems the majority of them barely or just best the 1% rule. Is it impossible to find 2% in 2019? It seems with 50% maintenance rule of thumb the 1% apartments don't even make sense for me cash flow wise. Anyone have any tips for me, I live in South Florida where prices are getting high.

Mike Dymski · Answer

The cocktail of 10 trillion in QE and near zero interest rates is a potent one.  It's been rocket fuel for financial assets, people's net worth, and house purchasing power.  We are in uncharted territory.

Russell Brazil · Answer

Yield in any type of asset is a function of the risk of the market and asset. If you desire higher yield, seek out higher risk.

Wayne Brooks · Answer

You won’t....that 2% is/was in rust belt cities mostly...not even sure it exists in even C neighborhoods.  But realize, in those markets there is essentially no appreciation, which is big chunk of your return here.

Hadar Orkibi · Answer

@John Bosse its totally doable, I been doing it for over a decade.

yes, you need to choose the right market, build a team and have boots on the ground - but it could be done.

Invest where the numbers make sense!

John B. · Answer

Yes, I made a post a few days ago about buying out of state but most people didnt recommend it without knowing someone in that area to be my "boots on the ground".

Lesley Resnick · Answer

Multi family is really hot right now across the county.  Even in the hood multi family is going to be tough at find at 2%.  You would be looking at a significant value add to get there.  You can do a lot better in SFH in terms of 1-2%.  Many of the old podcasts' models do not work in our current station in the RE cycle.  Just a few years back the numbers were much better.

Hadar Orkibi · Answer

@John Bosse your assumption for not cash-flowing great at 1% are right.

I find that typically we need minimum 1.6% to get reasonable cashflow. The 50% rule is not only maintenance, its all up OPEX (Operating expenses).

Everyone here thought you are referring to the FL market, yes 2% would be challenging in today market.

It is pretty hard these days to find decent Yield in Jacksonville FL. As @Wayne Brooks mentioned, maybe in the hood you will get better returns.....

Have you thought about investing out of area???

There are many other decent areas around the US that you can get decent cash-flow, you juts need to buy right.

Take in account that more often then not, you will buy at lower cap-rate, reposition the asset to achieve higher return on cost.

Bjorn Ahlblad · Answer

@John Bosse careful what you wish for. 1% can be a lot better if you can even find that. Anything above takes a certain kind of very experienced no nonsense LL few of us are. If that is not you don’t be messing with those tenants. All the best!

John B. · Answer

Im even willing to go North Florida and South Georgia but still havent found much

Wayne Brooks · Answer

No, there are no 2% properties here......except in the hood, on paper only. Our market is more of a 1% market.....larger multiunits a tad higher.

2% Rule Possible for Multifamily with commercial financing?

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