Confused about 2% Rule vs 50% rule

[Tarcizio Goncalves]

Hi BP Community, 

Can someone please tell me if the 2% rule the same as the 50% rule. Can the 2% rule work for properties in Massachusetts since the prices of properties are pretty high? 

Thank you all

Tarcizio

[Saran Mandhadapu]

50% rule: At least 50% of your rental income will be spent on expenses.

2% rule: Each month you should earn 2% on your investment. If you purchase a home for 100K, each month the rental income should be $2000 per month.

Some people use 1%, for 100K purchase price, the rental income per month should be $1000.

Look to purchase in other areas if properties in MA does not work.

Here is an example of the property I am purchasing currently in PA:

Purchase price = 140,000, Monthly Rental income = $2600 (for 4 units @ $650 each)

140,000 X 0.02 = $2,800 (this is the monthly rental income for 2% rule)

So this property falls short of the 2% rule but it does not mean it is not cash-flowing.

For this property my expenses are about 56%, so it falls short of 50% rule.

This link as more information:

https://www.biggerpockets.com/blogs/4454/32123-wha...