Looking for Rental Property that meets the 2% Rule

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Looking for Rental Property that meets the 2% Rule

Jacques Villars
Las Vegas · Member since 2020 · 2 posts · 3 votes

Hey All,

I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

Any suggestions on area's, agents, and lenders are all welcome.

Thanks in advance

3Reply
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Jacques Villars:

The 1% rule is a filtering device, not a method of calculating return. If you are evaluating a lot of properties, you can use a rule like the 1% rule to filter out the properties least likely to meet your requirements, then you spend time digging into the ones that are most likely to work for you. That's all it does. If you look at a property that appears to meet the 1% rule and never evaluate it farther than that, then you're making a big mistake.

Here's a guide that describes what good cash flow looks like and how to analyze a property.

https://www.biggerpockets.com/...

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y

    Why is the 2% Rule your criteria?

    6Reply
  • Jacques Villars
    OP
    Las Vegas · Member since 2020 · 2 posts · 3 votes
    3y
    Quote from @Joe Villeneuve:

    Why is the 2% Rule your criteria?


     Because I'm looking for something that cash flows, open to 1%, but I know there's 2% out there just trying to gain incite on geographic areas where people have found 2% and found success

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Jacques Villars:
    Quote from @Joe Villeneuve:

    Why is the 2% Rule your criteria?


     Because I'm looking for something that cash flows, open to 1%, but I know there's 2% out there just trying to gain incite on geographic areas where people have found 2% and found success

    Why would you use any percentage to decide if a property is worth buying is the real question? What does either percentage tell you as far as how much money in cash flow you will make? The 1% rule and 2% rule doesn't tell you the property will cash flow. It tells you nothing of value and they are big wastes of time. They are for the lazy and for those that can't add and subtract more than 3 numbers at a time. The only place those two numbers belong near anything to do with REI is on the milk cartons in the refrigerators in those rental units.

    9Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Jacques Villars:

    The 1% rule is a filtering device, not a method of calculating return. If you are evaluating a lot of properties, you can use a rule like the 1% rule to filter out the properties least likely to meet your requirements, then you spend time digging into the ones that are most likely to work for you. That's all it does. If you look at a property that appears to meet the 1% rule and never evaluate it farther than that, then you're making a big mistake.

    Here's a guide that describes what good cash flow looks like and how to analyze a property.

    https://www.biggerpockets.com/...

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    13Reply
  • Wesley W.
    Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    Here in high-taxes and expenses NYS, properties that meet the 1% rule typically do not cash flow at all.  All real estate is local.  You'll have to dive deeper into the numbers for each property you analyze.  The 2% is a "rule of thumb" and just tells you to look into the deal more or cull it from your options.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    2% will 95% put you in the HOOD..  D and F class.

    you can find those type of deals in most rust belt cities worst neighborhoods and mid west and deed south. all of those areas will have these types of properties.  

    or you need to source your own and buy rehab force value then rent.. that can get you to 2% as well.

    If you dont want the hood of major cities then

    you can find these deals in small rural towns in the NE  PA in particular some in OH and IN  of course there is always Geary IN.

    to name just a few..  I would stick to vegas baby  
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  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    Indiana.......not Indy but surrounding

    1Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    2% rule? Why? 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Jacques Villars:

    The 1% rule is a filtering device, not a method of calculating return. If you are evaluating a lot of properties, you can use a rule like the 1% rule to filter out the properties least likely to meet your requirements, then you spend time digging into the ones that are most likely to work for you. That's all it does. If you look at a property that appears to meet the 1% rule and never evaluate it farther than that, then you're making a big mistake.

    Here's a guide that describes what good cash flow looks like and how to analyze a property.

    https://www.biggerpockets.com/...

    At best it's a poor filtering device. Depending on the market, it can filter out almost as many cash flow properties as the ones that don't.  There's no direct relationship between the property value and the rent. Also, There's no common ratio between the rent and cash flow.  
    1Reply
  • Conner Olsen
    Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
    3y
    Quote from @Jacques Villars:

    Hey All,

    I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

    Any suggestions on area's, agents, and lenders are all welcome.

    Thanks in advance


    The rent to price ratio is not a good metric for determining the quality of a deal, especially in this market. It is a good metric to determine the rent compared to the price. For example let's say you went to the midwest and found a 50k house that rents for 1,000/month. My first question is, why is this property only 50k? We're coming off the greatest real estate appreciation in our lifetime and yet this house is only worth $50k? What's wrong with it? What needs to be repaired? What's wrong with the area? Why are tenants paying overpriced rent for this property if the average in this town trades at a 1% rent to price ratio?

    Personally, I think the 2% rule is unrealistic if you are going through the traditional means. Maybe you find a $150k house that rents for 3k/month on Airbnb, that seems reasonable but I'd have a lot of hesitation with 2% rule with LTR.

    2Reply
  • Carlton B.
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 281 posts · 133 votes
    3y

    You can try Milwaukee its where I live and invest and there are properties that cash flow. But knowing the lay of the land is important. 

    4Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    3y
    Quote from @Jay Hinrichs:
    2% will 95% put you in the HOOD..  D and F class.

    you can find those type of deals in most rust belt cities worst neighborhoods and mid west and deed south. all of those areas will have these types of properties.  

    or you need to source your own and buy rehab force value then rent.. that can get you to 2% as well.

    If you dont want the hood of major cities then

    you can find these deals in small rural towns in the NE  PA in particular some in OH and IN  of course there is always Geary IN.

    to name just a few..  I would stick to vegas baby  

     Yup.  I have some 2% + properties I can sell, I don't think they are good investments though.  Life is short spending it investing in the 2% properties will make it shorter due to the amount of stress involved.  

    I have seen some people do it successfully, but they are usually locals who live in the area and play by different rules.  They handle evictions "internally" and that sort of thing.  Its like buying a penny stock.  You may get lucky, but it will be dumb luck, not sound investing. 

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Jacques Villars:

    Hey All,

    I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

    Any suggestions on area's, agents, and lenders are all welcome.

    Thanks in advance

    Stay in the market you know.  Take your flip process and do a more moderate reno to hold and refi later. 
    The market you know (back yard) especially if it's Vegas is a competitive advantage to any  c or less neighborhood you're paying retail in somewhere else.  

    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Steve Vaughan:
    Quote from @Jacques Villars:

    Hey All,

    I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

    Any suggestions on area's, agents, and lenders are all welcome.

    Thanks in advance

    Stay in the market you know.  Take your flip process and do a more moderate reno to hold and refi later. 
    The market you know (back yard) especially if it's Vegas is a competitive advantage to any  c or less neighborhood you're paying retail in somewhere else.  

    not to mention other than the price of entry.. Vegas has some of the lowest tax's in the US.. desert climate as oppossed to thaw freeze or deep south rain clay soils thunderstorms wind etc.. grass that grows a foot in one month  LOL.. and a big one is houses that were built with modern codes most with stucco and tile roofs.. compared to houses that are 50 to 125 years old .  Which is very common back east. 

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    6Reply
  • Sarita ScherpereelBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
    3y

    @Jacques Villars Bigger pockets has a lot of interested articles/blogs and posts about these analyzing metrics are being obsolete in many markets. https://www.biggerpockets.com/...

    It's not to say you can't find deals that meet the 1 or 2% but in my opinion you get what you pay for in the class of the location. Which is fine if you know that you're getting into before you start. Best of luck. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Joe Villeneuve:

    It has to be tailored to the market. In my market, 0.7% is a more accurate filter. Anything that peforms higher than that is worth investigating. If I used 1%, nothing would fit the criteria. However, my market will appreciate a lot better than markets where 1% properties are readily available.
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    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Conner Olsen:
    Quote from @Jacques Villars:

    Hey All,

    I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

    Any suggestions on area's, agents, and lenders are all welcome.

    Thanks in advance


    The rent to price ratio is not a good metric for determining the quality of a deal, especially in this market. It is a good metric to determine the rent compared to the price. For example let's say you went to the midwest and found a 50k house that rents for 1,000/month. My first question is, why is this property only 50k? We're coming off the greatest real estate appreciation in our lifetime and yet this house is only worth $50k? What's wrong with it? What needs to be repaired? What's wrong with the area? Why are tenants paying overpriced rent for this property if the average in this town trades at a 1% rent to price ratio?

    Personally, I think the 2% rule is unrealistic if you are going through the traditional means. Maybe you find a $150k house that rents for 3k/month on Airbnb, that seems reasonable but I'd have a lot of hesitation with 2% rule with LTR.

    Very true, but that house that's worth $150k that rents for $1500/month could have a PITI of $1000 and have $500/month in CF.  On the other hand, if a $150k house rented for $3000/month, it could have a PITI of $3000/month, and end up with $0 CF.

    To say that they are only preliminary analysis and are used simply as a filter, is asking for trouble.  The 1% and 2% rules have absolutely no value at all, and worse, they could lead the user away from a good deal or into a bad one.  
    0Reply
  • Scott AllenBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2020 · 449 posts · 471 votes
    3y

    @Jacques Villars

    You can find 1% rules in Columbus, OH and 1-2% rules in Cleveland, OH. Columbus, OH is good for appreciation, growth, and cash flow. Cleveland, OH is good for mostly cash flow.

    [email protected]614-698-1227
    Reafco - Columbus, OH
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    0Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    The 1% rule is a valuable tool for filtering out potential options in the real estate market, but it should not be used as a one-size-fits-all measure of return. This rule can help narrow down your search and ensure that you are only focusing on properties that have the most potential; however, it is important to remember that this is just the first step. You should always take time to thoroughly evaluate any property before making an investment decision. Ultimately, the 1% rule can be an effective shortcut for investors looking to find profitable real estate opportunities - but it should never be taken as gospel. Always do your due diligence!

    [email protected]832-889-5607
    1Reply
  • Sam McCormackBusiness Member
    Real Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
    3y

    @Jacques Villars

    Cincinnati is full of potential, especially cash flow. I know it would be a great fit for you!

    [email protected]859-443-4952
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    0Reply
  • Adah N.
    Investor · Atlanta, GA · Member since 2020 · 294 posts · 142 votes
    3y

    @Joe Villeneuve

    What criteria do you use for your back of envelope calculation?

    0Reply
  • Steve Ehrman
    Troy, MI · Member since 2019 · 61 posts · 20 votes
    3y

    @Jacques Villars. You can find those here in Michigan. We have several properties that we are at 3.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Jacques Villars:

    Hey All,

    I'm an agent/investor in Las Vegas, flipped a couple properties, but looking to build a rental portfolio. For the first one I'm thinking I'd like to get one that cash flows well and unfortunately the market in Vegas doesn't really allow for much cash flow when factoring in a mortgage. I planning on using a conventional loan 20-25% down. I'm open to getting something anywhere in the US, if you know of areas with rent ready properties that meet the 2% rule, I'm in. 

    Any suggestions on area's, agents, and lenders are all welcome.

    Thanks in advance


     detroit michigan

    gary indiana

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Adah N.:

    @Joe Villeneuve

    What criteria do you use for your back of envelope calculation?

    I don't "back of the envelope".  I analyze Markets, which means I'm analyzing all the properties in that market at the same time.  This provides the market profiles for potential profit and cash flow in that market, as in how much to get in, how much I can take out (cash) and KEEP.  Then when a property pops up that fits into my criteria "at that time", I make my offer based on my criteria.
    1Reply
  • Nathan Cotton
    Realtor · Columbus, OH · Member since 2022 · 13 posts · 21 votes
    3y

    @Jacques Villars the Midwest could be a great spot for you if you're cool with remote managing as stated.

    While states here are mostly losing population, metros that have the right combination of industry (finance, healthcare, state university, gov't, etc.) like Columbus (where I'm based), Indianapolis, Pittsburgh, etc. are growing. 

    Columbus, specifically, is one example of a place in that sweetspot and 10-15 mins from downtown you have underdeveloped, unique older neighborhoods that are super desirable at the moment, as well as a massive college campus (OSU).

    1Reply
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