I was using the "Rental Property Calculator" on the site and I saw something under "Financial Info" that caught my attention. Does anyone know what this 2% Rule is?
Any help is greatly appreciated guys and gals! Thank you!
I believe it's the same as the 1% rule, but this rule states that you should want to rent the potential property for 2% of it's purchase price.
So if a home cost $100,000, you would want to rent it for $2,000/month
Hard to find in my opinion, so I normally shoot for the 1% rule
@Moises Ariel Maldonado Mazariegos yes, to confirm, that 2% rule is very difficult to find. Most of us seek a property that meets the 1% rule or better.
1. 1%-2% Rule: Purchase Price or Mortgage on the property?
I'm a veteran who's looking to use my benefits to buy a quad in the area (once I ensure I find a good deal), and I will more than likely use a 0% down payment to purchase a property.- In this case, purchase price is the same as the mortgage, but if I were putting 25%-33% on an investment property, than the difference between the purchase price and mortgage is obviously significantly larger.
@Moises Ariel Maldonado Mazariegos we are talking about 1%-2% of the purchase price
@Moises Ariel Maldonado Mazariegos I would even go so far as to say 1% of the appraised value. So, if I buy a property at a really good deal, I still want my rental value to be at 1% of the value. So if the home was worth $100k, and I buy it for $50k...then I still want to get $1000 per month on the rents. Your maintenance, taxes, insurance, etc. will all be based on the value of the property and not the purchase price. So that's why I want 1% rent of the value.
Also, since you are using a VA loan, on a multi-family unit property, you should ABSOLUTELY be 1% or above. Since there is no downpayment your mortgage costs will be higher since your mortgage balance is higher. VA loan is absolutely a good loan but since your mortgage is higher than most people (just the amount mind you), your rent needs to be able to cover that extra amount type of thing. I hope I am making sense on how I am describing this.
Let us know if you have any other questions. Thanks!
@Andrew Postell that absolutely makes sense, thank you so much for your help. I'll be sure to reach out to you on LinkedIn whenever I decide to seek financing on my next investment.
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