Exceptions to the 2% rule?

4 Replies

I'm looking at purchasing a single family home as a rental in the ski/resort town of Sun Valley, ID.  Based on the asking price, it falls short of the 2% rule, instead coming in at about .5%.  I know their are some exceptions to the rule that still make an investment worthwhile-  oftentimes these types of areas do not have a huge amount of growth and are actually restricted in growth because of the limited land to build on, which can drive values.  Sun Valley's property values are also below some other comparable areas, such as Jackson.  Any insights about rental investments in these types of areas would be helpful!

@Hen Ley many areas don’t hit the 2% rule yet can still be cash flowing. But 0.5% sounds like it’ll be tough.

Some investors look at appreciation in addition to cash flow, but as you’ve mentioned, it seems like that area isn’t a good candidate for appreciation.

I can suggest you run the numbers. Maybe taxes are really low or there’s something else that can offset the potentially low cash flow. But based on what you’ve said so far (and me not knowing the area at all), it doesn’t sound like a good investment.

Originally posted by @Hen Ley :

I'm looking at purchasing a single family home as a rental in the ski/resort town of Sun Valley, ID.  Based on the asking price, it falls short of the 2% rule, instead coming in at about .5%.  I know their are some exceptions to the rule that still make an investment worthwhile-  oftentimes these types of areas do not have a huge amount of growth and are actually restricted in growth because of the limited land to build on, which can drive values.  Sun Valley's property values are also below some other comparable areas, such as Jackson.  Any insights about rental investments in these types of areas would be helpful!

 The market is always moving up and down. In today's market hitting the 2% rule in almost every major metro in the United States is pretty rare. In 2013 during the recession you could find deals like that all over the place but not in 2019.

@Hen Ley as others have stated that sounds like a really slow rate of return. Seems like you’d be better buying a high-yield mutual fund at that rate. Easier, less risk, etc.

I am only willing to take the risk of buying a rental if I hit at least the 1% rule. There is little appreciation where I’m looking. If it happens, icing on the cake.

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