Rules of thumb VS midwest market

[Steven Birch]

Hi fellow BP members. I have been looking for my first investment property for approximately 4 months now. My goal/strategy is to buy amd hold for passive rental income while allowing equity and appreciation grow over time. However, I'm very handy with carpentry/construction and have the know how to flip if the opportunity presented itself. 

I live in the NW suburbs of Illinois, 60102, and have been shopping the surrounding areas for the right investment. However, I've noticed that when the 2% rule or the 70% rule are applied to any of the properties in my area,  the numbers just don't work. Even when I lower the 2% rule to a 1% rule, it's just not feasible. A 3 bed 2 bath single family near me rents about $1800 a month but costs about 220k. 

My question to the group is whether or not the rules should be flexed to accommodate the area, or whether to stick to the rules because the right property hasn't come up? I know they're just guidelines but I'd love to hear opinions from those that have done it. 

[Brie Schmidt]

@Steven Birch - the 1% or 2% rule isn't any indication of how good or bad an investment is.  It is just a ballpark "rule" to determine if you should dig into a property.  It also varies by asset class, a 2% property in a C class area will cash flow less than a 1% property in an A class area.  Proper due diligence and actually running numbers is what you should be doing.

I haven't seen a 1% rule in Chicago in years (north side and surrounding suburbs) and the 70% ARV hasn't been feasible since about 2015