Do we still shoot for the 2% rule in today's markets?

General Landlording & Rental Properties
7yFollow

Do we still shoot for the 2% rule in today's markets?

Shaye Mora
Rental Property Investor · Moline, IL · Member since 2017 · 45 posts · 28 votes

In today's markets, do you find yourself still shooting for the 2% rule? Do you focus on a 5, 7, or even a 10% cap after all expenses? Do you focus on $200 a door? 

As investors, what deals/numbers are striking you to eagerly pursue a deal? 

What numbers turn you away from a property?

I understand all markets are different, but I would like to see what today's investors shoot for! Please provide your goal-driven number as well as the market those numbers apply to!

0Reply
129 views

Most Popular Reply

Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
7y

2% is non-existent in my market.

It’s hard enough to find a 1% deal.

5Reply
See this reply in the discussion

28 Replies

Jump to latestLatest
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    7y

    2% is non-existent in my market.

    It’s hard enough to find a 1% deal.

    5Reply
  • Johann Jells
    Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    7y

    All markets are different. 2% was never an option here, but I'd consider $200/door awful since doors here cost $100-300k.

    0Reply
  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    7y

    @Shaye Mora Sure you can shoot for it, but those are VERY VERY hard to find in any market.

    0Reply
  • Shaye Mora
    OP
    Rental Property Investor · Moline, IL · Member since 2017 · 45 posts · 28 votes
    7y
    Originally posted by @Grant Rothenburger:

    @Shaye Mora Sure you can shoot for it, but those are VERY VERY hard to find in any market.

     Indeed it is hard to find! My first deal I got was a 1.88% and this 2nd deal I'm about to close on is sitting at a 3.0% flat!

    I don't look at the 2% rule, but more at the cap on my investments. 

    0Reply
  • Melissa Barnard
    Realtor · Southlake, TX · Member since 2018 · 54 posts · 35 votes
    7y

    I'd love to shoot for 2% but that is also nonexistent in my market! However, there are some that you can find for 1%.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    I stopped shooting for 2%.. instead I look for 3-4% because 2% just isn't enough ROI for me to bother with

    1Reply
  • Joe Sanzone
    Specialist · Northeast Ohio · Member since 2018 · 12 posts · 11 votes
    7y

    @Dennis M. 3-4% ?? So you're getting a property for $50k and getting $1500-$2000 a month rent for it? Is this a multi or SFH or both?

    4Reply
  • Brit Hale
    Real Estate Agent · Joplin, MO · Member since 2018 · 112 posts · 96 votes
    7y

    @Shaye Mora I’ve got relatively inexpensive SFRs in the 1.3% range and a small duplex around 1.6%. Personally, would rather have a 1% deal in a good location or property I’m proud of than a 2%+ war zone bomb. Depends on your strategy.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    Originally posted by @Joe Sanzone:

    @Dennis M. 3-4% ?? So you're getting a property for $50k and getting $1500-$2000 a month rent for it? Is this a multi or SFH or both?

    I’ve never paid  that much ! but yeah ive got 1500 rent on 35k in multi and 625 on 10k single . 950 on 22k duplex’s . Houses are cheap where I invest . Very common to get 3-4% here on  off market  deals . Just got to poke around without using the mls .

    1Reply
  • David Nino
    Rental Property Investor · Moline, IL · Member since 2018 · 39 posts · 27 votes
    7y

    @Shaye Mora. I think 2-3% is fairly common in the quad city area. Most of mine are in that range.

    1Reply
  • Wesley W.
    Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
    7y

    If you are willing to buy a distressed property, the sky is the limit when it comes to ROI. Perhaps consider a deal that needs work, where you can put some sweat equity in early in your career while you wait for the market to turn.

    1Reply
  • Ed Moran
    Rental Property Investor · Boston, MA · Member since 2019 · 134 posts · 50 votes
    7y

    1% is most up and coming markets are there but hard to find - if you are getting anything above that you are in very small submarkets and most likely picking up distressed properties.  Folks getting 3-4% sounds like an anomaly bur sign me up. 

    0Reply
  • Eric Schultz
    Investor · San Diego, CA · Member since 2016 · 265 posts · 305 votes
    7y
    Shaye Mora If you are achieving 2% or better in the investor-friendly states these days, it probably comes with higher vacancy over the long haul and/or is C- or D-class.
    2Reply
  • Greg Carrier
    Investor · Granger, IN · Member since 2015 · 195 posts · 129 votes
    7y

    @Shaye Mora All depends on the market. In my market we need 2% minimum for the houses we do Which are on the low-end

    0Reply
  • Karl B.
    Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes
    7y

    In my PA market I shoot for 2% and have always met that number. I'm looking at relocating and am sitting in my hotel room in MO (viewed/will be viewing properties yesterday and today). Since it's going to be a FHA-loan I am pickier with the property as I'll be living there for a year or two. And a nicer area of course typically means less cash flow.

    With the properties I'm looking at to live in (B-class and up) I see 1%-1.2% if they accept a lower offer (a few are priced too high and a few are reasonable but I will of course offer lower). 

    Though when it comes to the properties in this MO market I would be buying and renting out (C-class), 1.5% is fairly simple and 2% can be done if I am patient.

    0Reply
  • Joel Fine
    Rental Property Investor · Leander, TX · Member since 2018 · 183 posts · 264 votes
    7y

    I aim for maximum cash on cash return. 12-15% in the market where I invest (Cleveland). Rent to value ratio is fun to look at but ultimately incidental.

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Shaye Mora

    1% here, if a duplex and landlord pays zero utilities, garbage, lawn, etc. 1.5% if bigger and the meters not divided and I pay for water, heat, etc. I thought I wanted 2% and up, but those areas are low C and D, and I didn’t want the hassle. 3% is 0% if tenants don’t actually pay the rent. That being said, I’ve been outbid all this year when people are accepting 0.7% (with rents at market rate).

    3Reply
  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    7y
    Originally posted by @Shaye Mora:
    Originally posted by @Grant Rothenburger:

    @Shaye Mora Sure you can shoot for it, but those are VERY VERY hard to find in any market.

     Indeed it is hard to find! My first deal I got was a 1.88% and this 2nd deal I'm about to close on is sitting at a 3.0% flat!

    I don't look at the 2% rule, but more at the cap on my investments. 

     Very nice, I see those still happening most often in C and below neighborhoods. Around me that is the case anyway.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    I would never touch a property with a yield as high as 2%

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    2Reply
  • Brit Hale
    Real Estate Agent · Joplin, MO · Member since 2018 · 112 posts · 96 votes
    7y

    @Russell Brazil yeah, I also prefer it be as “passive” as passive income can be. #nowarzones

    1Reply
  • Kyle McCorkel
    Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    7y

    There’s some nuances that (it seems) 99% of people don’t pay attention to.

    To me, rent to value is defined as:

    Rent=Monthly Rent (duh)

    Value=the final value of the property, on which you borrow 75-80% typically

    This is important because in order for the metric to work it must reflect your cash flow.

    I know a lot of people who mis-use this metric by using purchase price instead of value.

    For example: “I bought a property for $40k and it rents for $800 whoop whoop 2%”

    But what those people don’t think to consider is that they put in another $40k in rehab, now the property is worth (value) $100k. So they do a cash out refinance for 80% of 100k.

    This is not a 2% property...it’s 0.8%

    So, moral of the story when evaluating properties, look at market rents divided by ARV (as a first pass only) to determine cash flow potential.

    3Reply
  • Shaye Mora
    OP
    Rental Property Investor · Moline, IL · Member since 2017 · 45 posts · 28 votes
    7y
    Originally posted by @Kyle McCorkel:

    There’s some nuances that (it seems) 99% of people don’t pay attention to.

    To me, rent to value is defined as:

    Rent=Monthly Rent (duh)

    Value=the final value of the property, on which you borrow 75-80% typically

    This is important because in order for the metric to work it must reflect your cash flow.

    I know a lot of people who mis-use this metric by using purchase price instead of value.

    For example: “I bought a property for $40k and it rents for $800 whoop whoop 2%”

    But what those people don’t think to consider is that they put in another $40k in rehab, now the property is worth (value) $100k. So they do a cash out refinance for 80% of 100k.

    This is not a 2% property...it’s 0.8%

    So, moral of the story when evaluating properties, look at market rents divided by ARV (as a first pass only) to determine cash flow potential.

    Good post, Kyle! I agree with you fully. You have to look at the ARV. You can't base the 2% off a house that isn't rent ready.

    All the houses I seek are rent ready properties, with small interior fixes! The 2% isn't the main focus of the investment. It's a quick check to see where the property stands, then you dive deep into the ROI after all expenses.

    0Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    7y

    @Shaye Mora 2% does not exist in the Twin Cities area with the possible exception of the very worst areas. Even 1% is a stretch unless you do a lot of work yourself on a place that you get cheap due to its condition (cheap being relative) But the Twin Cities is an expensive market.

    0Reply
  • Johann Jells
    Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    7y
    Originally posted by @Kyle McCorkel:

    But what those people don’t think to consider is that they put in another $40k in rehab, now the property is worth (value) $100k. So they do a cash out refinance for 80% of 100k.

    This is not a 2% property...it’s 0.8%

     But that's just one snapshot, a flipper's view that doesn't take into account the renters buying it for you. As a buy n hold, I look at the end of a 15 year mortgage for my long term return.

    0Reply
  • Kyle Wells
    Realtor · Lake Stevens, WA · Member since 2018 · 122 posts · 91 votes
    7y
    Originally posted by @Shaye Mora:

    In today's markets, do you find yourself still shooting for the 2% rule? Do you focus on a 5, 7, or even a 10% cap after all expenses? Do you focus on $200 a door? 

    As investors, what deals/numbers are striking you to eagerly pursue a deal? 

    What numbers turn you away from a property?

    I understand all markets are different, but I would like to see what today's investors shoot for! Please provide your goal-driven number as well as the market those numbers apply to!

    Depends on market, but here in KC I aim for 1% when doing quick test. Then 7% cap rate, and 9-10%+ cash on cash return. I'm originally from Seattle and it's more speculative there with maybe the 0.5% rule and 4-5% cap rate. Playing the appreciation game there in the short run. 

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free