2% rule in expensive markets

[Hanan K.]

Hi Everyone. I'm a somewhat of a newbie (own 2 SFR in Northern CA) looking to invest in my local market. My question is: Does the 2% rule apply in expensive markets (such as Northern California). It seems to me that the 2% rule takes repairs and vacancy into account but my market has virtually 0-2% vacancy rates and the homes I'm looking at are in good shape. We are also very handy and able to handle many repairs on our own. I would highly appreciate any feedback. Thank you!

[David Faulkner]

Originally posted by @Max Gradowitz:

The 2% rule is not a good predictor of a good rental property 

Yes! What he said! ... not only is it hard to find in an expensive market, it is also from my experience a horrible predictor of long term profitability on a rental property. I've been doing this 15 years, and have bought and rented properties from 0.75%-2%+ rent ratios at time of purchase ... you know what? Some of my most profitable deals long term have been 0.75% deals and some of my least profitable ones have been 2% deals, and much variation in between ... so, to me at best it is a meaningless metric, at worst it is the opposite in that it has in my experience been slightly inverse to the profitability. YMMV and plenty would argue otherwise, but this has been my experience over many years, many different properties, in a few different markets, at many price points and price-to-rent ratios, in both high and low markets.