Obligatory 2% Rule Post: Origins, 50% rule, and interest rates

[Scott Pigman]

I believe that it's in the BP charter that every member is required to start a thread about either the 2% rule or the 50% rule at some time. So here's mine.

Does anyone know when and where the 2% rule was first stated? Was it first posited here on BP? Did William Nickerson write about it back in 1959? Did some guru come up with it while hanging out with his supermodel girlfriends on his yacht in the 80s?

I'm curious partly just out of general historical curiosity, and partly because I'm wondering if it can be tied to particular point in time, what the prevailing interest rates were then.

If you accept the 50% rule as being an accurate* approximation of expenses and ask the question, "how much rent would I have to charge to cover my expenses and my mortgage at x% interest?" then it looks like your rent would have to be about 2% of the purchase price when interest rates are somewhere in the 11-12% range. I believe that was the rate back in the early to mid 80s, so I'm wondering if that was when people started talking about a "2% rule".

At 4% interest you can cover expenses and the mortgage at about 1% rent/price.

*insert disclaimers about it being a law of averages over sufficient time and properties

[David J.]

50% rule came from Mike Rossi from Ohio. 

http://www.biggerpockets.com/users/MikeOH

He used to defend that 50% rule and cite to a study he could never find.  I think someone eventually found it and posted a link.  It was a study for large apartment complexes across the US. He defended it so hard that he eventually gave up and quick contributing to the forums.  His last post was 4 years ago.

BP has really changed over time (like any community will do) and some of my favorite contributors from back in the day couldn't handle the masses of newbies and forum trolls providing unpure advice.  Sad really, because I can think of a few that were great to follow.  Really taught me much of what I use to be successful now.