I’m a newbie ready to get into REI. I was wondering about the 2% rule. I got the carleton sheets course years ago and I read about the 1% to 1.33 % rule to make the property cashflow. Is the 2 % rule basically a new standard on making cashflow ? and is 1.5 % still a good investment on a single family home rental.
I will have alot of question’s for you guys here and have learned alot from the vet’s on here already. :beer
Properties will not cash flow (with 100% financing) if the gross rents are only 1% of the purchase price… and they never did. The 2% rule is just a screening tool and says that a property with gross rents of 2% of the acquisition cost (purchase price + rehab cost) is likely to have an adequate cash flow. Obviously, you still must do a cash flow analysis.
Mike
2% is just a rule of thumb that states if your monthly rent is 2% of your purchase price & rehab, your property should cash flow just fine. You can search for 2% or the 50% rule so frequently discussed on here. The 50% is as follows:
50% of your rent covers debt service (mortgage) and cash flow
50% of your rent covers all operating expenses (insurance, property taxes, vacancy, management fees, any owner paid utilities, advertising, repairs, maintenance, eviction costs for court/lawyer/etc, & more)
So if you find a property that doesn’t fit the above numbers, you can either raise the rent or lower your offer price to make the numbers work. If you don’t, you’ll likely have a property losing money for you (commonly referred to as an alligator).
As for your 1.5%… I don’t have any SFH rentals yet, but I know 1.5% on my multifamily would make mine a loser. I bought my property with rents at 1.3% which was not good, but 2 of the 6 units were empty. After some quick renovations and filling the empty units, we got the rent up to 2.3% which works out quite nicely.
Bring on your questions. This site is loaded with helpful people!!
Happy investing!
[post deleted–ques. was answered in another thread]