Using the 2% Rule in Omaha, Nebraska

15 Replies

We hear a lot about “The 2% Rule” (or, as The Book on Rental Property Investing calls it, “The 2% Test”).  For our benefit, I would like to create a local forum discussion (THIS forum discussion) that documents our investing experiences here in Omaha.  My intent is to have an ever-evolving catalog of properties (at the neighborhood level) showing the relevance of this rule of thumb in our city.

This is a controversial topic, and it seems very difficult to pass the 2% Test in Omaha, but hearing each of your real stories will make this locally meaningful.

—————————————————————————————————

If you need a refresher on “The 2% Rule” it is simply this:

MONTHLY RENTAL INCOME / PURCHASE PRICE = X%

Here are a few links:

Youtube video by @Scott Trench (click here)

BP article by @Ali Boone  (click here)

BP article by @Mark Ferguson (click here)

—————————————————————————————————

To start contributing toward this database, simply respond to this post with the following:

(1) NEIGHBORHOOD

(2) PROPERTY TYPE (single family, multi-family, etc.)

(3) MONTHLY RENT

(4) PURCHASE PRICE

(5) RENT/PURCHASE PRICE RATIO (%)

—————————————————————————————————

For example, your response might look like this:

(1) Midtown

(2) Duplex

(3) $1,800 (unit one: $800; unit two: $1,000)

(4) $150,000

(5) 1.2%

—————————————————————————————————

Hope this becomes very informative for the Omaha investing community as we start to develop our local rules of thumb.

-Shawn

I think another criteria should be added to the discussion. If the utilities are the tenants responsibility or the owners. Using the 2% or 1% rule is good as a leading indicator but should not be indicative of determining if the property is a "deal".

1. Blackstone

2. 5 plex

3. $2815

4. $188k after repairs

5. 1.5%

6. Owner pays utilities

@Shawn French

There are 2% deals here for sure, however I personally don't like the condition and location of many of these properties.

$40,000 property that rents for $800/month is easier to do than $150,000 property that rents for $3000/month.

I have seen exceptions.

(1) Stillmeadows (North central)

(2) SFD

(3) $1,250

(4) $85,000 +$8,500 Rehab

(5) 1.3%

This property cashflows pretty well and is still quite a bit less than the 2% rule. Better percentages can be found pretty easily, but from my experience, you typically need to venture into the rougher parts of town to get them. I personally would rather have a little lower ratio and not have to deal with the headaches other properties can bring. 

I would agree with @Anthony Gayden .  You can get the 2% rule without forced equity through rehab, but these are often (not always) in bad areas. The market right now isn’t helping right now either.  Home prices are making it harder to find these numbers right now.

1. Gifford Park

2. 3plex

3. $2305 total rents

4. $116k  after repairs

5. 1.99%

6. Owner pays all utilities except gas

purchased 2/10/17

2% won't be found in a move-in-ready investment in a good school neighborhood here. All I give a damn about is Cash Flow and ROI.

@Bryant Bagley , I'm a bit of a newbie so this may be an obvious question, but isn't the 2% 'rule' a measure of Cash Flow and ROI? So a property that comes close to the 2% rule would have good cash flow and good ROI?

This is a great discussion to start so that we can all see example of what has gone on with the Omaha market the later half of 2017. Thank you Shawn! I think 2% in Omaha in a good area is VERY hard to find. I've personally never heard a reference to the "2% rule". I've always just heard a reference to the "1% rule" In my opinion, 1% is the bare minimum you should be willing to invest in.  Of course there are so many other factors such as areas with higher tax levy, getting personal financing with higher interest rates, housing that has monthly assessments, areas that require flood insurance, all these things can throw off the simple 1% rule depending on the property. I think the important thing to remember is, so long as other factors remain the same, rental prices will always go up with inflation. You may only get 1% but if you raise your rent 3% each year, your cash flow will increase every year. Almost any investment in real estate that starts off at 1% will be a good investment in the future.

Here are a few that I assisted with in 2017:

(1) On Cuming between 35th-46th

(2) all single family

(3)  $1250, $1300, $1500

(4) $105k, $115k, $120k

(5) 1.2%, 1.1%, 1.25%

(1) Benson

(2) single family

(3) $1315

(4) $125,000 + $,500 in repairs and updates

(5) 1%

I use the 1% rule, but buy SFH in west Omaha. Vacancies have been less than 2 weeks for the past 3 years and expenses are minimal. SFH in west Omaha are also highly liquid-able in under 30 days at near market value.

(1) Westin Hills

(2) SFH

(3) $1450

(4) $137,000

(5) 1.05%

Y'all are very altruistic. If I found a great deal I'd be putting an offer in on it, not telling other local investors about it.

@Eric James that's operating under a scarcity mentality though. We all have limited resources so why not help others by sharing a deal, contact, and knowledge? That's what I love about BP.

Originally posted by @Eric James :

Y'all are very altruistic. If I found a great deal I'd be putting an offer in on it, not telling other local investors about it.

 The question was asked in past tense.  After the deal is done and you post it, we all are actually egoistic.  

We are finding 2% really only in 68110, 68111, 68112.  Some of these areas can be rougher, but there are some really good pockets in these areas as well.  Definitely wouldn't avoid what people may think are "rough" areas as a lot of people, in my opinion, just hear the words "North Omaha" or mention those zip codes and they automatically think its a bad area. We have a few that meet the 2% rule scattered throughout metro Omaha outside of those zip codes, but definitely are a lot  harder to find.

Originally posted by @Andrew Syrios :

The 2% rule is garbage, I would discard it and find a rent/cost that makes more sense for the area you're looking in. For the longer version of my rationale, you can see this article: https://www.biggerpockets.com/renewsblog/2015/05/06/2rule-die-horrible-death/

Totally agree with your article.  I may have missed it, but I don't think it covered appreciation.  That's the icing on the cake for a long term buy and hold investment rental. It is more likely homes will appreciate in these stronger neighborhoods that appeal stronger applicants.  

I've had real good luck with the rule for SFH that if the property cannot generate 1% of purchase price in rent, then you're probably better off putting money elsewhere. In Omaha, after taxes, insurance, $100 a month in expenses, and self managing, it has provided me with an 8% cap rate on purchase price. It's a slow and steady grind, but been one of my best investments. Granted I've been in the game the last 4 years which I think have been exceptional years in housing.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.