A question about the 2% rule

3 Replies

I’m planning on starting my investment career by house hacking probably a duplex. With the 2% rule, if I’m going to be living in one half of the building, should I look to achieve only 1% of value of the entire building in rent from the other half?

When analyzing a house hack, treat the entire property as though you weren't living in it.  In your case, here's an example:

Purchase price: $100k

Potential rent: $2k/mo ($1k per side)

The above would meet the 2% rule.  However, when you look around, there aren't a lot of properties that can meet that threshold.  I guess it depends on how comfortable you are living in a neighborhood with $100k duplexes.  Really, you're talking about cap rate.  The more accurate rule of thumb is the higher the cap rate, the less desirable it is to live in those places.  

Realistically, the art of the house hack is finding a place where your tenants pay your expenses for you, and you live rent free.  Don't be limited by the 2% rule, 1% rule, or any other rule.  Depending on your market, you may not be able to achieve any of those standard rules, but you can still offset (almost) all of your personal housing costs.  Point is, perform your due diligence, and calculate all the variables.   Make sure your property can survive without collecting rent from the unit you're living in, otherwise the "hack" doesn't work as well.    

@Jack P. As jack mentioned, the 1% and 2% rules are just rules of thumb. Don’t actually buy a house hack or any property based solely on those numbers alone. Run the actual numbers and do your due diligence. It doesn’t matter what the rent to price ratio is, run the numbers and figure out if the rent revenue and all expenses justify the specific purchase. If your hacking, take out the revenue you won’t get from the unit you occupy and see how much fixed housing expenses the other unit covers. If your comfortable with what your results are, then it might be worth a deeper dive.

Thanks for the replies, guys. That makes sense.

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