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Real Estate Deal Analysis & Advice

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50% rule and the 2% rule

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Posted Aug 3 2008, 10:51

I thought I had heard another investor say that the two rules were basically the same thing. Maybe I misunderstood, but if not could someone explain how they are the same thing??? And also, the 2% rule seems to work best when searching for properties under 100k. It seems that rents are a larger portion of the purchase price the lower the purchase price. Hope these make sense.

THANKS!!

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Hollis Cook
  • Investor
  • Vero Beach, FL
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Hollis Cook
  • Investor
  • Vero Beach, FL
Replied Jun 18 2016, 00:27

I ran the numbers again, taking out all seller cash back, 10% down with a selling price of $299K (out of pocket increases to $48k) the C on C ROI still comes out at $582 the ROI drops to 19.29% but the the 50/50 rule increases to $511, is that because of my increase in cash down? The 2% rule is still way off. I can't figure this out, please help. Thanks!

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Rob U.
  • Investor
  • Colorado Springs, CO
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Rob U.
  • Investor
  • Colorado Springs, CO
Replied Jul 25 2016, 14:56

In Colorado, a property for sale for $260,000 (built 2009), monthly rent $1,700 for this property. Unless I'm buying crack houses, there is no chance of paying $85,000 for a property and getting anywhere near $1,700 in RELIABLE monthly rent.  Also, you're telling me that I should assume $850/mo in expenses?  That is very unrealistic, more like 10x too high actually.  I could buy property in Kansas, follow the 2% rule, and have deadbeat tenants who don't pay rent, don't have stable jobs, and property values stay flat for decades.  

Someone please explain how the 2% and 50% rules make you money in real estate, not in theory, but in actual practice!

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Nadia Cervoni
  • Maplewood, NJ
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Nadia Cervoni
  • Maplewood, NJ
Replied Aug 21 2017, 11:38

Hi there. Question about the 50% rule. Is one aiming to have simply a positive cash flow to assume it's a good deal? Or is there a threshold you should aim for? Thanks.