Sacramento market: 2% and 50% rules

[Crystal Francis]

Hi everyone! I'm new to real estate investing/BiggerPockets, and I'm excited to have found such a great resource and community. In reading the Beginner's Guide, the 2% and 50% rules have me pretty concerned about finding an investment property in my local real estate market (Sacramento area). As a new investor, I like the idea of purchasing a duplex to owner-occupy and ease into this new world of landlording, but it seems VERY difficult to find properties that meet these criteria.

I have been monitoring the local market by identifying properties that I would be interested in purchasing (based on area, size, price, etc.) and recording their sale price and monthly rental income.

2% rule

I'm finding that the range of monthly rental income/purchase price is around .61-.78%, which is much lower than the recommended 2%. Bummer.

50% rule

Even if I model a loan with 20% down (which I was hoping not to do to preserve cash), I'm finding the expected monthly mortgage payments range from 50% up to 64% of the expected monthly rent. If I believe that the expected expenses of the property will be about 50% of the monthly rent, then the properties I am considering would be cash flow neutral, at best. Even BIGGER bummer.

I'm interested to hear how many people adhere to the "rules" or whether you have developed your own criteria. I'm torn between wanting to get started already and not wanting to be a foolish first-time investor. Any input is much appreciated!

[Walt Payne]

@Crystal Francis welcome to biggerpockets. In markets like CA people do several things. One is to revise the "rules", which are really just a rule of thumb. So you might use a 1% rule instead. And because you are accepting lower cash flow, usually close to neutral, you would carefully buy in neighborhoods where appreciation is likely and acquire equity through appreciation and mortgage pay down from the tenants. In theory you can raise rents and take the equity out as you go.

Another strategy is long distance investing. Which has it's own down side and risks. Or you could invest in notes, or one of many other REI related investments.