2% rule with down payment

3 Replies

Hey guys, I’m learning how to do an analysis on properties. One thing I’m confused on is the calculation of the 2% rule. Can someone give me an example of how down payments come to play? For example, let’s say a property costs 100k and rent is 2k. This obviously covers the 2% rule. If I were to put a down payment on this property of about 10k, would I add that amount to the 100k then try to see if it covers the 2% or do I subtract the 10k so it’s 90k*2%? Does this make sense?

@Sarkis Gezalyan , The 2% rule is a quick way to get an assessment of the potential profit from a property. Also, the 2% rule doesn't apply everywhere, as the markets are very different. Some places 1% is a good rule of thumb. What actually matters is whether or not the property is cash flowing, and how much. Than it goes even further to what amount of cash flow is acceptable to you, in your area? 

But to answer your question... If you bought the property for 70k, can you rent it out for $1,400; or 2% of the amount of money you purchased the property for? So, you can look at it as if you got a great deal if you bought the property at 70k and it's actually worth 100k, but renting it out at 1,400 is the 2% rule, not what you put down (as if you put down 20% which is 14k, this has no barring on the 2% rule). I hope this makes sense. Good luck and PM me if you would like help. 

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