2% Rule Question

3 Replies

My questions is if the 2% rule applies to the initial purchase price or the price after rehab? I recently purchased my first property for $36k after closing costs etc. Rehab is roughly 15k. We are all in for 51k. Expect to get 1,100 in rent. Using the initial purchase price, this property would be 3%. If you use the all in price, this would be 2.1%. Which would be appropriate, and if it is not the latter, can you eplain why the rehab costs would not be factored in?

@Christopher Lawrence  it's based on the total invested (purchase and repairs).  It's a self-imposed rule, not really a rule anywhere other than in some people's strategy.  I wouldn't get too wrapped around the definition.  You have an awesome deal on your hands if those numbers prove to be accurate.  Congratulations!

@Robert Leonard  

Thanks! I found a foreclosure about a block from a college campus. We had a lot of luck with how much repair was actually needed and the timing of the purchase. Thanks for the clarification!

I always count the purchase + rehab. Otherwise, you could buy a house for $1 and have $100,000 in rehab.  What would you say about that if you only counted the initial purchase price?  :)

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