Real Estate Investing Rules You MUST Know (The 2%, 50% & 70% Rules)
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- เผยแพร่เมื่อ 23 พ.ย. 2024
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If you're getting started in real estate investing, then you need to know about these 3 rules of thumb (The 2% Rule, 50% Rule, & 70% Rule)!
These rules are basic math equations geared to help you quickly estimate the cash flow of potential real estate investment properties!
In this video, Brandon breaks down each rule with examples, for you to know how to use each one. But, rules are meant to be broken.
Brandon not only demonstrates how to use these rules but also why they aren't always true.
We hope you enjoy this video and if you do, make sure to LIKE, Subscribe, & leave a comment!
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What do you think about these rules?
Let us know below!
Great information!! Very clear with good examples. As well as your rule, my rule is also to stay away from high property tax areas. Sometimes the taxes are much more than the monthly mortgage payment and taxes always go up.
What are your favorite quotes Brandon? You should make a video of that if you don't already have one!
None of these rules work for where I live or even anywhere close to where I live, everything is expensive. I live just outside of Toronto
@@trigs1326 I live in Atlanta and even in rural areas of Georgia, you can't find 2%
@Todd Crabby yeah, no way unless someone gets lucky and finds an old lady who likes the buyer
For newbies, be aware that this is a grossly oversimplified scenario. For one thing, you can't get a mortgage on an investment property without at least 25% down payment. Two, it's easy to see comps for house purchase prices, but it takes a lot of research to understand the comps on rent prices. The trick is to find a place where renting is more expensive than buying, but those places are less common because of this very type of scenario. Three, you have to remember that rent number he's using is supposed to be net income, not gross. So you have to think about costs for taxes, insurance, maintenance and vacancy when you're researching investments. All that said, real estate investing is a good tool for wealth accumulation. But it isn't foolproof.
Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.
@@rogerwheelers4322 Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes.If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
@@FabioOdelega876 Personally, I can connect to that. When I began working with "Colleen Janie Towe’’ a fiduciary financial counsellor, my advantages were certain. In these circumstances, I would always advise getting professional help so they can steer you through choppy markets and just give you indicators and strategies for knowing when to enter and exit the market.
@@RoseVulinovichMy adviser is ‘’Colleen Janie Towe’’ I found her on a CNBC interview where she was featured and reached out to her afterwards. She has since provide entry and exit points on the securities I focus on. You can look her up online if you care supervision. I basically follow her trade pattern and haven't regretted doing so.
I used the 1% rule to buy my property in Alaska. Here properties don’t exist at 2% and 1% is really good. I got mine at 1.4%. I will make it up with higher appreciation though!
Same here 1% is really good where I live.
@@ProfitPioneersRETV it means 12% annually so stocks return the same or high
@@raaaavlogs that doesn't really translate. 1% rental payment doesn't equal 1% return.
If your numbers don't work out on Cash Flow only and you are counting on appreciation to make your numbers work...Its a speculation not an investment. Investments produce cash flow.
Money Maven many stocks and index funds do not produce cash flow despite being solid investments.
Early saving and investing money creates compounds growth, it's a beautiful thing.But it takes focus and discipline. You need to be focused enough to commit to a plan and a process.
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I feel like the 2% rule can’t be achieved anymore with home prices these days. Average price of a home in London Ontario is around 500k..nobody would pay close to 10k/month in rent lol
Yes, the house prices, or better said the land they are standing on, are through the roof. In our big cities in Germany like Berlin or Munich people pay 40 rent years for a property. Finding a house below 20 rent years (>0.5%) that does not need at least another 50k in renovation, is highly unlikely in most regions.
Yes, prices in Canada are making it incredibly challenging for anyone wanting to buy as investment or primary residence. It's a bad scene imo.
Impossible in the USA for the last 10 years. It was only possible around the 2008-9 housing crisis.
Bingo this video is insanely outdated lol
Dude, so true. I'm stoked when I get close to 1% rule. If I found a 2% rule I'd be on the phone so fast
I’ll call mine the 0.8%-1% rule. Put me in several very comfortable cash flow and equity situations.
My time is valuable. I love that you get right down to the practical information without any fluff. You get right down to business which values my time, and makes me an instant subscriber! Great videos!
The 2% rule is nuts. If you expect to buy a $250,000 property and rent it for $5,000, you're on drugs. Most cities in the US the rent for a nice 4 bed 2 bath house is $2 to $3K. Purchase price is going to be $250K to $400K for a standard middle of the road house. Even a fixer-upper is going to be $1O0,000 to $200,000 and you'll put $50K or more in repairs, and you'll be lucky to get $1,500 month rent. That gives you a 0.5% to 1.0% monthly return, rather than the 24% annual return your 2% rule gives you.
Prices are nuts where you live.. around here you can get 4-6 4 bedroom homes for 250k my first home I'm trying to close on right now is a 2 bedroom 1.5 bath for 25k and has a newish roof
Agree, and who would even sell a house to an investor if they are making a 24% gross yearly return? In my area investment properties prices go up until there is no cash flow. So usually 3 to 5 % so that the house is paid off in 25 to 30 years.
I guess somewhere deep in America, you can find the odd super high return property until investors find out about it and drive up prices.
location, location, location, and timing. Buy a house and rehab it for an all-in price of $60,000 and charge $1200/month. That's hard to find, but not impossible. Or, I'm sure there's multi-family deals that fit the 2% rule. A 20 door apartment building charging $1500 rent would be $30,000/month. If you bought it at $1,500,000 that would also be 2%. Again, not the easiest to find, but not unheard of. Happy hunting.
Td_kd Name don’t think you understood the point of the video
Also do you know what cash flow is? It is NOT rent compared to purchase price of the home…
It’s a *rule of thumb* (aka not set in stone) to help you narrow down INVESTMENT properties and see how likely it is that it will cashflow. 2% or more (which he said is rare) is almost positive to cashflow. 1-2% will likely cashflow (at least eventually if its the right deal and u do it right), less than 1% probably won’t cashflow or at least is not worth the investment, as a rule of thumb.
Cashflow is money coming in vs money going out. So this is all the expenses with owning a home, including taxes, repairs, etc… as well as mortgage which in most cases you probably will get, vs the rent income. This rule of thumb will give you a general idea, from his experience, whether or not the property will be able to have a positive cashflow.
In other words your point about “this is crazy” and go on to say how it is in your area, doesn’t disprove what he says. It may actually reinforce it.
The 1% or 2% rule can be used to figure out if an area is generally overpriced or a seller’s market. Boston or DC are such. I lived in a house worth 750k that rented for 2k a month. Boston market is more of a buy and hold on appreciation type of investment. Most of the properties that give 1.25-2% are not attractive for appreciation purposes 5-7 years down the road.
1- find the positive percentage flow. Rent÷value. The higher, the better
2- half of income goes to expenses
3- find ur mortgage and profit and cash flow
If you read this comment, don't bother watching the video
why would half your income go to expenses, other than the mortgage? I spent maybe a few hundred bucks a year on maintenance for my house when I was renting it out.
I have never seen a 2% deal in my life but I have seen a few close to 1%.
what is the average
like 0.8 is good but is 0.8 achievable in general or is it like only some hidden gem
@@mouinemhb4960 If a property followed a “0.8% rule”, it would equate to a 9.6% cap rate. That’s considered quite high and risky in the world of real estate. Typical cap rates are between 6-8% for a good condition property in a decent area with low risk tenant. A 7 cap property would follow the “0.58% rule” if you go by this video.
I suggest you become well versed in cap rates if you arent already. Much more of a useful metric compared to this arbitrary unrealistic 2% rule.
the amount of time we spend believing we can't is more thank enough time to learn how you can.
@John Alfred crypto investment, but you will need a professional guide on that.
@John Alfred Mark J. Ramsey
I think these rules mostly apply to low priced areas. Popular coastal areas with large populations and great jobs such as Seattle, San Francisico, Los Angeles, etc. are practically impossible to find 1% rule houses much less 2%. However, those low priced areas do not appreciate much, but the coastal area big job centers do - so what you don't make in cashflow, you do make up and then some in appreciation. Those better areas also tend to have better tenants and less turnover and damage. So the take these rules of thumb with a grain of salt.
This is a quality post.
My understanding is that appreciation should almost never be sought after (unless you really know what you're doing and can take the risk) but should be viewed as a bonus if it does occur. I would be very hesitant to purchase a property that is cash flow neutral or especially negative. Buying for appreciation is speculation. I would reconsider your position on these rules.
@@treystills Never said anything about negative cashflow. Obviously you want rents to pay for your costs. I'm just saying if I would have followed the 2% rule, I would never have bought a single rental home during the great recession even. Well, we now know that would have been missing a fantastic opportunity. I picked up a half dozen houses and they have more than doubled since then. Cashflow pays the bills, appreciation will make you rich.
Actually, I don’t even think there is one single area where you can get a 2%, basically you pay the house in 4 years, is anyone so
@@jerrydesu I love that you pulled the trigger and it worked out very well for you. Certainly the 1/2% and 70% tests are guidelines and not rules. In my area I'm not finding anything yet around 2% so I'll have to take the risk and find something that will get me going. Best to you
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Yeah definitely everyone thinks this way but it is very difficult to achieve it because emotions are involved and wrong choice are being made!
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I’m not too worried about cash flow. It’s the appreciation of the house, as well as the tenant’s “taking care of the mortgage”. Buying properties in up and coming areas and breaking even for a few years is not bad. Especially when the rent pays the mortgage, and the house value shoots up.
The 2% Test - the most commonly held rule of thumb - looks at the monthly rent divided by the value of the property.
We should be aiming at around 2% for the property to be producing positive cash flow.
At 01:01.
the monthly rent, he means per unit or gross monthly rent?
Where can find it? I never saw one, even 1% are rare. Where can i rent a unit for $2k/mo and get a $600/mo mortgage on it?
@@quietlike Nowhere, today this is not available.
I think some have missed the point of the video, they are rule of thumb, it helps an investor get a quick snap shot of a potential deal so that the investor can decide quick if the deal is a GO or NO GO, simple as that, there are variables that affect cashflow like expenses of course, taxes, purchase price, but think about it this way, a $1 cashflow is still a positive cashflow. So of course after you run it through the 2% test, you then do more research. It goes back in knowing your market like rental rates which is important.
Great tips! A suggestion might be to do a video of states where it is most financially favorable to invest in for those just starting out. The cost of properties in cities like New York doesn't lend itself to those who may want to start out on a smaller scale.
AirBnB seems to be the only way you can achieve the 2% rule in the US. I would love an updated video regarding this rule/test.
I dont know were everyone else lives with dream deals but the average home price her in Cali is $750K!
Oh my goodness! I'm so glad you guys are covering slang.
You guys should do a series on just slang and terms
Yes!
2% is possible in D and F areas with all section 8 tenants.
explain pls?
I would respectfully question the 2% rule if I may
So here it is my perspective
I bought a unit for $280,000 all cash (zero bank finance).
The condo is 85 sqm and according to official zonal values (not market prices) is assessed by the municipality for $4,000 per sqm or $340,000 in total.
Property taxes are based on the latter price and paid to the municipality annually, discounts on cash payments apply.
On June 01 I rent the condo for $1,500 per month (net price, association dues and projected property taxes already subtracted).
So, based on the 2% idea I did a really bad investment ... $1,500/$280,000 = 0.5% so a bad investment.
However
$1,500 per month (net) * 12 / $280,000 (actual buying Price) = 6.4% ROI
Add on that the asset appreciation over time and I don’t think this investment is so bad ... it’s bricks & mortar after all.
So far and luckily enough I own a few condos in the place where I live and whenever I can get anything around 5.5% to 6.5% return in my investment (net, after taxes and expenses) I go for it without any hesitation.
I can be wrong but this is my perspective only.
I really liked your other video with the cash flows quadrant, I learnt and I thank you for that.
While you are getting a return with the possibility of appreciation, I respectfully have to point out that 6.5% return is not very good. The S&P 500 "averages" 10% including inflation. So based on that, you would be better off putting that money in an index fund.
Source: www.nerdwallet.com/blog/investing/average-stock-market-return/
don't forget to factor in some vacancy and repair & maintenance costs.
i've never seen a 1% deal , let along 2%
yeah, imagine if you got a 12-24% ROI yearly on a rental.
Strongly agree. I haven't seen a property in my life that gives 24% annual return.
@@aleksandrvasko8976 5-8% is normal.
It mostly works in duplexes triplexes
It's not 24% return. This is a metric to evaluate rental income, not ROI. I personally have a property at about 1.7%, so I know for a fact this is possible. It might not be possible or reasonable to expect it everywhere, but it absolutely is possible somewhere.
Thank you sir. Your videos are extremely helpful especially in my learning stage. I appreciate all that you guys do.
Great advice. I have an income property and it has a value of 250k, I rent it out for 1500/month and it generates 200$ in cashflow. That is because I purchased the property last year for 193k and put 50k as a downpayment.
Joshua De Serres so your cash on cash RoI is 4.8%
You would need $1,930 a month just to meet the 1% rule. Seems like that rule is a bit off though. Idk where you could buy a house for 200k and get more than 2k a month for it. That seems crazy.
He just made me change my mind about getting into real estate
Ikr
why?
@@SeeRGeneration if that's all the profit he's gonna make, what's the point?
@@jerrycramer8721 mmmhm what type of returns are you looking for.
@@SeeRGeneration the kind where I dont have to work all the time.
Can you do a video of building property on vacant land or even tearing down and building new?
Ok I have gone back and forth on this question. I understand the fifty percent rule for reserves. Should you do this for every property or with more properties do you reduce this percentage?
Well his guidlines tell you to save your money to pay for a new "ruf" or say a water heater, garbage disposal, or runny toilet. His view is suggesting maybe a property manager to take care of these things for you instead of you being able to fix these things on your own. Which would help you exponentially in your expense catagory.
I’m not into real estate but I really don’t like the fact that most times the ends are small when compared to for example stocks and hedge funds. On my smallest investment I earn about $4.2-4.5k depending on the market a month.
Allow me disagree mate. I’m actually in both investments although I’ve been on real estate market for quite a while, but I would have always guessed it’s more lucrative when placed with Wall Street investments
I believe both sectors are quite lucrative, it all depends on your approach and how much you’re willing to begin this various investments. Also how you got about it will guarantee if you’re making profit or not
You are right. It’s all about your approach
I’ve got to admit, investing on the trade market was not so profit worthy especially when I was still trying to do it all alone.
I do owe it all to sir Morten an expert analyst. His system has been more than rewarding for me. This is his page
hovikmorte. com
Facts I’ve got to agree, perhaps I might check him out and see how he does it. Approach got to use that on my other investments as well.
Thanks Mr Dante
Bottom line is 10% return is the baseline for doing absolutely nothing (S&P 500 fund). Any RE investment that returns less than that is a waste of time and energy.
Wow... this really opened my eyes to how terrible my area is for real estate investing. I've been interested in the idea for a while and started to look into it more seriously in the past couple weeks. Properties around here (Stoney Creek, Ontario, Canada) range $600,000 - $800,000 with a rental income of $2000 - $2500. That comes in around 0.3%... I would be looking at a mortgage payment around $1700 monthly so that also fails the 50% rule... time to re-evaluate.
You make things so easy for me ( i am not educated at all in this type of thing and I am trying to educate myself , and with your videos it’s possible)
I’m not bored out of my mind hearing voice lol and I LOVE how you repeat and explain what you mean . Good job !
I'm happy with the 1% rule... it's almost impossible to find such deals in 2022.... The 2% rule seems unattainable even in 2019, except in the Rustbelt.
I don't know how people can be more interested in Real estate that in actual all round portfolio investment management.
I have my trader Mr Jordan Arnold trade stocks, forex, options, ETFs and bonds for me and this way i earn over $10,000 monthly. This is my only sourc3 of income at the moment and it's really paying off. Everyone should consider this at some point in life.
The Beatles I’ll take knowledge where I can get it. What do I need to look into to get started
Because you can 4x more for tour dollar in real estate moron. If I have $100,000 I can buy $400,000 in assets in real estate. You can’t do that with an investment portfolio. If you buy in the right markets the returns will blow investments out of the water. For example, in Colorado I bought a rental for $120,000 and initially made a modest cash flow but I then sold that property last year for $330,000. I bought it with a $30,000 down payment and put about $10,000 in repairs and then sold it netting almost $200,000. Good luck turning a $40,000 investment into $200.000 with an investment portfolio. You don’t buy rentals for the rental cash flow. You buy them as an investment that somebody else pays for. You can buy more for your money in real estate
Here in NJ Its good to get about 1 percent to 1.25 percent .
2% is a lot unless its multifamily and nice apartment buildings.
Single family house getting 1 to 2 percent is tough.
2% a month would be 24% a year, meaning you'd pay off the house in about 4-5 years. Don't think anybody would sell a house if he'd get these returns. I live in Europe and getting 10% a year is already outstanding for decent areas.
Don't forget 2% is the gross income flow from the rent. For the monthly returns you would still cut that down by half for expenses. So in this rule of thumb you are only getting 6%-12% return annually. It's very unlikely you pay off the house in 4-5 years with those returns.
Don't know if You mixed and switched examples but You lost me on the 70% rule.
I think it's important for beginners to know that Your example did work out to a positive cash profit in the end. 70% of 300K is 210K, that's a 90K spread (not 50K spread nor 50K ARV), left over to pay out commissions, holding cost and yourself (profit).
If like you said, After Rehab Value is 300K minus 90k (30%) spread equals 210K (70%) minus "50K rehab" equals 160K purchase price. Then simply take the spread 90K Minus 24K (8% of 300K) for Realtor commissions, equals 66K, minus 9K holding cost for 6 months at 11% on 168K, which is 80% of 210K (assuming you came in to the deal with 20% of acquisition and rahab), so your left over NET PROFIT is 57K, (before uncle Sam shows up :)
Thank you so much Brandon Turner and Bigger Pockets for complete invaluable information for a newbie. Your enthusiasm, paired with how you break it down for someone who knows nothing, is nothing short of AWESOMENESS! I really appreciate you! Warmly, Amber
I couldn't agree more, THANK YOU!
How do you know how much a home will rent for when using the 2% rule? Do you search up comparable homes for rent at the moment??
Yes
Great video. The one percent rule seems unrealistic in a appreciating market. A good location that appreciates you may not get your cash flow, but you can get great appreciation. I bet I can get that one% rule in inner-city Detroit though.
Exactly made more the last two years in Appreciation than all rents combined.
As per the 2% rule , we are not able to find any properties in this market. Even 1% is difficult to find. What modification will you suggest in this? Or should we not buy in this market?
I'd like to see the $100k house generating $2k/mo. rent. Is it in Fantasyland? How do you get there?
Marty Mcfly let me borrow his delorean and I just bought me two homes in 2011 exceeding the 2% rule.
Foreclosures
You almost only get thid type of return with duplexes/ triplexes. I have a 150k duplex that generates 2000 per month. It's really hard to get those returns on SFHs
Is this guy Insane? In what area does he live? Not a chance in hell in the northeast. Duplexes in my area are going for 350k and each side rents for 1400 if you're lucky. You'll never get 1% nevermind 2%.
@@oakd1975 Which is why RE is way overvalued.
When we look at what the "monthly rent" is, should we use the "estimated rent" that is listed on Zillow and Redfin? Cause when I use that, it seems to almost never meet the 1% rule. Thanks!
Where are you finding these 1-2%'s that youre speaking of
Never-never land
How can people give a thumbs down
To your videos ?? Your offering priceless information. Thank you, know I finally know about the 2%rule I see people
Taking about.
Thanks for the videos and for “BIGGER POCKETS” !!!!! Brandon you’re a Blessing.
Got a property cashflowing only 1000k net. With all expenses throughout the last 4 years I've only spent about 5k in repairs and maintenance. Bought for 245k now worth 500k I think it's time to sell
Brandon such sound advice, just started following you a month ago and working my way down the podcast from top to bottom. My house doesnt make sense as a rental according to the 2% rule but makes alot of sense for a Heloc and doing a BRRRR, what do you think.
The 70% depends on area, I know areas where investors are willing to buy the property at 80% (minus expenses)
So many people focusing on why it wouldn't work in their city. Where your attention goes your energy flows. Focus on how you could make it work or what the solutions could be, stop dwelling and playing the victim card. In my city it is not great for real estate investing, so I am looking in another city in another country and I am trying to make it happen!
@Shadow of Satos I get ya brother, but you can make it work. At least where I'm at above 1 percent isn't too tough and although I have some local help, we run it mostly remotely. I don't trust property managers!
@Shadow of Satos I don't like to get too specific on here friend. If you want to send me a message on here I can shoot you an email. Or if you are on bigger pockets, you can find me there. Basically, I work in a rural area. I mean all my houses are over 1%, including the ridiculously overpriced one before the house crash.
@Shadow of Satos I only have my own experience to go with, so how it works elsewhere I don't know.
I have a question. According to the 50% rule, are you saying that on average the rental income should be at least twice the mortgage payment? Thanks
Rule 1 in owning rental property.."GET A PROPERTY MANAGER"! Dealing with tenants will get you out of the business real fast.
What is a propet manager
Khalid Ali when u lock ur own asshole
@@carlsagan4548 lol what
@@megatronn5816 Property manager is a company that is taking care and manages your property and your tenants for a fee. But I heard that some property managers don't do good job at all.
Haha yeah it can be a headache
I have one rule only: Net ROE >= local market renting yield. This means : 12x net monthly rent (after taxes and annual mortgage repayments, utilities) / down payment (My equity) >= 1.5% / 2%.
Cool. Thxs for being clear about these "rules" and explaining they aren't hard and fast and you shouldn't invest capital into a deal solely based off those guides without doing a full analysis.
I used those rules of thumb before I bought my two 4-plex's at forclosure. I obviously went deeper into underwriting my deals to make sure they'd pencil considering these buildings needed to be repositioned and still ended up making mistakes and having unknowns happen but good learning experience.
Johnny Mack You’ve got it right!
@@DudeRealEstate thxs dude!
all of this is broken in extremely expensive housing markets. could you make a video on how to evaluate investments in expensive markets like NYC, SF, LA, etc?
I think a housing crash will happen because all those people who bought homes over asking price, although it was at a low interest rate, they are over their heads. They have no equity if the housing prices continue to go down, and if for whatever reason they cannot afford the house anymore and it goes into foreclosure because even if they try to sell, they will not make any money. I think this will happen to a lot of people especially with the massive layoff predicted for the future and the cost of living rising at a high speed.
@James Vigor I hope that’s when I can buy an apartment when the housing market tanks.
Lol keep waiting!
Disagree.. the difference between today and 2008,, the large investor buyers were corporations in 2022, not individuals. They are holding on properties to rent, not flip.. and the individual owners are living in the homes, there is no reason to move, unless there are some massive layoffs coming, which is possible, I don’t see a trigger that sets off a massive decline in prices,, we have already had corrections based on interest rates,, and we will continue to see that over the next 15 to 24 months,, but once rates turn around ((and they will most likely after the next presidential election)). You will see a mad rush to get back in the market as everyone will try to capture the bottom of the pricing,, and the market will sky rocket again. It’s the American way..
im just learning about this so excuse my ignorance but does this %2 rule mean that if you achieve it, not only will you cover your operating expenses AND mortgage payments but you will also get money in your pocket after those 2 expenses are paid for? i really appreciate any responses, thankyou
I’m making 500 a month on a duplex is it better to save up and get another multi family or pay down and use equity to get the next?
Never pay down especially with these historical low interest rates. No reason to pay off loans when they're charging 4%.
4% is peanuts. Throw it in an index fund and you're making 10%/year which is more than enough to cover the interest on the house or buy more rental properties.
BRRRR
Save up enough for a down payment for another. Make sure the other one is really going to make twice as much money as the one you have now. If it doesn’t pass on it because you will be working twice as hard for the same amount of money. If at the end of the year you haven’t found the sweet deal. Pay down on the principal. The principal is not going away and something you can chip away without working extra hours.
I am confused about this because when looking at rental properties for single family homes in my area(Phoenix and Tempe, AZ) with a 5% down payment(about 22k including closing costs) the cash flow is still positive by $200 to $300 but im not reaching the 1% criteria. I am getting equity and positive cash flow still. My money is far better of here in the bank especially if i do it 10 more times. Comments, advice?
Rules of thumb are such a great way to immediately disqualify properties without wasting time conducting a full analysis!
Exactly! If a property comes close to the rules, then you can dive deeper!
@@biggerpockets 100%
Man, I'm seeing you everywhere lol on instagram & TH-cam. What other platforms are you on ?
@@johnnyb33good21 That means I'm doing something right hahaha...I'm on Facebook as well, and of course my website!
@@Frommilitarytomillionaire exactly... nicely done
Thank you for helping us without charging us ✌✌
Too good to be ture, I just bought 620k house and can't only expect to get $3k rent. This is reality
then it isnt in the right area
not the best market for your house
but then again 3k a month isnt that bad as long as you dont have to pay interrest
Very helpful. For the 2% and 50% rules, that doesn't change with appreciation, right? It's always based on the purchase price.
None of those rules work in the state of Colorado. As long as your numbers work and you are cash-flowing, these rules won't matter. I have 7 rentals and none are in the red.
In my community in Wisconsin a house that costs 400k gets 1,500 in rent.
I doubt the accuracy of these rules.. actually getting >1% is great work imo
Thanks Brandon. I was looking at a 700k property and talked to the realtor about the 70% rule. He said he would use 80% on this one. Now I understand a little bit why. Question: What "rule of thumb" would you use for a sliding scale on 70% rule? (ie. 200k house 70% ARV, 300k house 75% ARV, 400k house 80%? I just made up those numbers....) Thanks Bro.
I need to move to this area where you can get 2% monthly rent to purchase price!
This rule became big in 2008 when you could find such pricing. 1% is considered pretty good today
Thanks for that. I didn’t know that the 70% rule can change depending on so many factors like you mentioned
$2000 monthly/$200k price... Nothing passes that test in Norway. $300k price for a small 1 bedroom apartment will rent out for about $1200.
This is for USA properties I don't know anything about European or Norway but sometimes if things don't fit the real it's best to invest in other asset classes like the stock market depending which country has a higher rate of return per dividend or maybe real estate in Spain versus Norway or maybe real estate in Northern Spain and not southern Spain but too many people get hanged up they think they have to buy at high prices and then later on they realize they paid too much
Hmmm 🤔
Any way to get a house that needs repair for 60k, repair it for another 60K for a grand total of 120k even though the prices of houses in the area are 300k?
Like you mentioned, these rules/tests are great ways to just eliminate surface dead weight properties. Don't have a lot of time to waste. Who does your background 🎶? Great taste!
Uh. I'm new to RE and all, but 2% seems absolutely impossible. Even 1% seems like a stretch. Are there really markets that can see a 2% return?
Hey, I'm in Toronto, it's borderline impossible, I'm doing some calcs for my clients here and we'll be lucky if we get .5%, not everything has to be cash flow positive when you FIRST get your property, people annoy me so much with this, if it was that easy everyone would be doing it. For one of my properties in a Toronto suburb, I was breaking even, and kept increasing the rent every year by 1.8% (max allowed), then when my tenants would flip, I'd bring new ones in at an even higher rent. It took 9 years, but I went from breaking even to $1000 per month! The market rewards the patient. Also, don't buy houses in crackhead areas :p
Hey Brandon. In my country wages and therefore rents are MUCH lower than in USA, so the 1 or 2% rule doesnt really fit. The equivalent of a 2k rent house is like 800 or 900 here I think, in which case people almost always never rent because only wealthy people could afford it and prefer to buy. With a bit of trial and error I came up with a different rule for countries with 1000 (euro) average salary. 0,5% rule would be equivalent to US 1%, and 0,8 % rule would be equivalent to US 2%. When I first learned these rules from american investors I wondered why all below market value houses I came across seemed liek horrible deals until i figured we have to take average rents and salaries into account. These numbers cant apply everywhere.
Richard, where are from? How can I contact you?
Where in the country are investors getting 2%?
Maybe on shit houses worth 50k where you charge the tenants $1,000.
It's funny because $1,000 is my mortgage on a $230,000 house but by the 1 or 2% rule if I rented the same house, I would be paying $2300-$4600 per month lol.
I'm in southeast Missouri, near a college and two hospitals. I have some houses that do better than 2% and some right at 2%. The ones that do better than 2% are ones that i had to rehab after buying, but all the costs included plus the acquisition, i make 4.2% on one property.
@@MichaelP-ke1tm i have a house that i bought for 30k, rehabbed for 25k, it appraised for 105k and i rent it for 1,800/month to the college football team. :P
@@therealstephenschott
College areas always rent for more than other areas
@@MichaelP-ke1tm Oh Definitely. The OP had asked where anyone is getting 2% and college towns are definitely a start!
Houses in my area are selling way over list price and buyers have to pay closing in a sellers market. I don't see some of these principles being realistic in that environment. Am I wrong?
In California you won't meet the 2% or even 1% rule. You can buy a 300k house & rehab it for 50k to make it worth 450k and only get $2 - $2.5k in rent. That rule is for crack houses in the ghetto.
Man, even California is better than where I live. $300k house (here that's 300k with a € and it means means a 1 bedroom apartment). I found an old house for €450k in a decent town with a relatively large property (really cheap for a house there) but then I saw how it was built. Every single damn bedroom was up in the second floor with a huge living area in the first floor where the only bathroom was also situated, antiquated basement that doesn't meet regulations to make it a rental either. It would require about €200k worth of renovating, a year of applying to the bureaucracy and another year of work (all the while generating 0 money) to partition it into a student housing building. Won't be investing in any new real estate any time soon.
@@ivarlosna6516 Yeah his numbers are area dependant. He buys very cheap run down houses in very cheap states. I live in a cheap part of California. In other parts of CA you can 3x - 4x my numbers lol. I make 0.6% monthly in rent and I'm thrilled to have that lol.
@@Danny... Sounds like the same percentage as here. Man, people who started working in the 70s or 80s didn't know how good they had it.
Scratch that, I found a new house in the meantime. There are always some hidden gems if you look hard enough. 6 bedrooms to rent out plus a basement apartment, all for €500k. With no vacancy it'll yield €55k gross a year. Pretty good for my location.
Ivar Losna first buy? Sure sounds like it.
Newbie Question (if you don't respond to this I won't be offended): I can make any property positive cash flow with the Four Square Method if I pay 100% cash and thus no P & I in expenses; but then the same property is super negative if I only calculate 20% or even 50% down. Do y'all have a rule of thumb or advice on how much I should put down on a property in determining the expenses, cash flow and cash on cash squares? Thank you so much for all of your free advice!!!
So are you telling me that there are people that rent houses for a 2% of the value?? Do you realize that with that money they would pay out the house in 4 years and 2 months??
Is your figure after monthly expenses?
Ashroyer86 I’m just calculating how many months of rent the house is worth, a different metric. If you want to calculate income, sure, let’s consider a monthly expense of 25% the rent, then in 5.5 years you get gross income equivalent to the home price. Sure there are taxes and what not, but we are talking about percentages here and 2% a month is just nuts. I mean, I’d love them to give me a link to any of those properties.
Ashroyer86 even with a mortgage with 3% down (which anyone that can pay 2% in rent can afford it), your monthly payment including taxes, pmi, insurance is about 0.8% of the home value. Someone gotta be stupid or under some exceptional circumstances to pay 4000 in rent on a 20000 house.
In your 50% example. What do you do with the 400 excess? How much do you put away for cap x expenses or unexpected repairs? Do you just take all 400 and then worry about repairs etc after by getting a loan for it or do you put 50% of the 400 away every month to save for extra expenses?
These rules are really useful when you have a bunch of properties you want to analyze quickly.
There is no analysis. You are being scammed!
For the 2% rule in the math should you use the price of the house you purchased it for or the price of the house you purchased it for + renovations if you plan on doing renovations.
How could you have a rule of 70% if it’s unpractical
It is all depanding where you live. Maybe not in San Francisco, but easily in most of Texas, New England...
Definitely in the Midwest
In India the maximum you would get is 0.40% and the interest on mortgage is around 9%...Which makes us count on only appreciation to make returns
Never heard of the 2% thing before this! Thanks
Depending on the area. 2% properties are unheard of in my area
When it comes to the 2% rule. When you say value of the property. Do you mean what you paid for it or it's actual value. Because a property could cost you $200,000 but it's valued at let's say $280,000.
So should I divide the monthly by the actual value or how much I paid for it ?
So you're saying I should look for a $100K property that I can rent for $2,000/month? Oh, okay. Thanks for the tip.
Where I live houses start to sell for $250K and rent is abt $2.7K and up....
@@babycakes8434 Where is this town where people pay far more to rent a house than own one? If Austin, TX hears about this they'll go nuts.
@@markguitarlfk In CT
@@babycakes8434 can you link to an example on zillow, I'm very interested.
@@babycakes8434 you’re lucky, I live in California, im gonna have to drive far to find good deals
When ur talking abt the 2% rule are we talking abt initial purchase price or are we talking the ARV value when u refinance (planning on doing Brrr strategy) any info is appreciated.
your living in a land far away from California with those prices.
California is a land far away from financial intelligence.
In my market of north Carolina, my rental properties are on average 0.6% monthly rent over the market value but still making good cash flow. 1-2% would be great if you find such deal but if you wait for the deal you probably never make an offer in your life.
Where's that "ruf" instead of "roof" accent from?
Da souf
I AM SO GRATEFUL FOR YOUR VIDEOS! THX ! I WISH U ALL THE BEST
In Snohomish county Wa this is not possible.
0.4% is possible though 😂😂
i bought a property at the beginning of this year and according to this I’m making a 4 percent return
That’s not good
"The higher the percentage, the higher the cash flow"
*You dont say*
1% rule is realistic in the right markets; 2% is unheard of unless you find one hell of a deal (or buy a distressed property / do a rehab / etc.).
So that will never happen here in Ontario Canada lol. At least where I am in Ottawa, Single houses are going for 400k+ and renting for under $2,500 a month.
Exactly, here is rural alberta a 250k home will rent for 1500. 1% is impossible.
What is a single house? How many bedroom?
Yep. My ex gf lives in London and the market there is insane. Homes are way overpriced. From what I seen, a guy couldn't make any money it in that market unless you bought a home needing some money put back in. The only way
What rate does the 2% rule assume? If you got 3% vs whatever today on the mortgage that home value is going to vary immensely when it comes to monthly expenses. Any thoughts what the "assumed" mortgage rate would be?
Where did you get that instrumental, that shit bumps.
lol
2% rule? Everyone would be doing it if this was true. In MO I have 3 rentals - 0.73%, 0.73% and 0.77%. And here's a surprise, my biggest cash cow by a long shot, is one of the 0.73% properties. While this rule is a reasonable and quick assessment to use, I think a more realistic target is 1%, depending on area. Using the 2% rule, you'll overlook pure gems.
I use an excel spreadsheet. All I punch in are rent, taxes, management fees, HOA, insurance and it delivers an annual, monthly and weekly income amount at the bottom. As long as it's a positive cash flow in a desirable neighborhood, I'm all in. This method is more in line with the 50% rule. A good, informative video, thank you.
I'm in Kansas. I have a $30,000 house that does slightly better than 2%. The house rents for $650 (2.1%). That house won't see any appreciation, or I don't foresee any for the next 20 years. I have 2 houses that I got for $50,000, and both are just below 2% both rent for $850 (1.7-1.75%). Another house I got for $60K, and its 1.5%, $895. That said, I don't use the 2% rule. I can look at a house and just know what its going to rent for and I can then calculate our the ROI and cash flow. I don't calculate any appreciation, but some of those houses should increase in value. My tenants are actually all pretty decent, and never had to do an eviction yet... knock on wood...
@@mattks1001 You got some great deals Matt, well done! I suspect your properties are not in nicer neighborhoods, or you got some foreclosures? At any rate, excellent numbers! There aren't too many places around St. Louis where I could get a house for even $50K, but I think I might go a little rural now since you've given me an idea! Thanks!
@@michaelking42 Thanks, I hope I am doing well. I sat on my butt for 3-4 years before my first purchase. I wish I had started earlier, even if it meant worse performing properties. I have 4 rentals, 3 were foreclosures and 1 was owned by an old lady and needed to sell quick and move away with her adult children. None of my houses are rural. 3 are in good neighborhoods, and the cheapest is on the edge of a bad neighborhood. I think the problem with rural is the potential market gets a lot smaller for renters. I'm about 1 hour from KCMO. My cities problem (or my problem) is a lack of multifamily on the market. My problem now is scalability and growth, but that's why I'm on bigger pockets to learn...
Michael King Nice info. Do you mind sharing that spreadsheet with me?
@@jparekh18 I can give you some of the property basics for the $30K house. Rent of course is $650. Insurance $540. Property tax is somewhere around $600 if I remember right. I put in $2500 for maintenance and Capex. Vacancy 8%. I also have a loan at 5.5% for 30 years. Cash flow around $160 and ROI around 21%. ROI wise, that is my best property, but cash flow wise its a little low. My goal isn't really to obtain houses like that, it was just a great deal I didn't want to pass up. My $50K houses basically cash flow $100 more, and the ROI is a little lower. Most people would be shocked by how decent the house is. It's small, around 750 sq feet, but its really good quality and not a slum house. The oversized modernish garage (1980's) and central AC/heat is really what gets the house rented. I try to keep my rental turnovers under 2 weeks, so my true vacancy is less then 8%. I just try to be conservative and I recommend the same to anyone else.
2% rule only applies to weed grows
J Swartz Not for the Canadian government.