the 2% rule in lubbock texas, myth or reality?

11 Replies

Is the 2% rule a far cry in Lubbock?  I've been running the numbers on multiple locations and i have yet to find a property that can produce and fall within the 2% rule.  Is there anyone who is achieving these kinda of results?

I'm not sure about Lubbock but I believe that the 2% rule is dead in most markets for quality properties at least (if anyone can prove me wrong I'd be excited to know where these properties are).

I wouldn't consider it dead in Lubbock necessarily as I'm sure there are properties out there that can attain 2%, but it's probably so infrequent these days, you'd be looking for months and months before even getting close to 2%.  I think it's feasible to expect between 1.2%-1.5% on average currently. If a property makes it to list, you're likely below 1.2% from what I've seen. Of course, time of year is a major factor as well. 

As you're probably aware, Lubbock is in a seller's market for rental props, but if you find a 2% deal, will you let me know??    : ) 

@Cody Malone The 2% rule isn't completely dead in Lubbock, but it's going to be extremely difficult to find something like that in this market right now. If you do find one that meets that criteria, it's probably something in a war zone that you should probably stay away from anyways. The rentals that I own range from 1.15%-1.7%. Even those numbers can be hard to find on quality rentals in Lubbock, but there's always a few out there. You just have to do a lot of looking and analysis and sort out the bad eggs. Most of the good ones that are sold on market go under contract within 24 hours. 

Awesome advice guys. I assumed that that would be the case and was basing my model from 1-1 1/2%, but it is truly reassuring to see that the experts agree, thanks for the input!

@jordan sutherland Great advice jordan, do you curently have properties achieving these rent factors? And if so, generally which lubbock neighborhood do you feel is the best to achieve these results? I was thinking south of 19th and east of university

I have some properties getting higher rates of return, but they started in rough shape, are in C or D neighborhoods, and are rented by people with credit issues. I talk to all the neighbors during the renovation, do a lot of tenant screening, inspect every month or two, and rent to people I can build a rapport with. If you understand that these are very different than the B properties and have appropriate procedures in place, they can be very good!

@Cody Malone ,

I really like @Joan Brown 's comment. 

You can find properties like this with a 2% but you have to be willing to work hard to get it. 

My theory on this is that you either typically get cash flow or appreciation from a property. 

A & B properties provide appreciation and low or no cashflow.  
C & D properties provide good cash flow and low or no appreciation.  

You will have to spend a lot of time screening tenants, and work with folks who can't rent other properties to get those 2% deals.  Sometimes getting a little lower percentage up front can work out later.

We bought a property about a year ago that was a little over 1% but now that rents have gone up and the property has appreciated as much as our down payment, we can get about 1.5% for rent and we hope to see that go up over the next few years.  

Who knows? maybe in 5 years it will be 2% on that original purchase price.  Meanwhile it is a quiet and nice rental that pays the bills and has a decent cash flow.

Good luck!

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