50% 2% rule

[Maximo Flores]

Hello,

About the 50-2 rule, I wanted to ask how attainable is that rule in major cities? I live in Seattle and it's pretty difficult to find deals that pass that rule. I have been able find properties that pass the 50% rule (but I think that's thanks to the low interest rates of these days) but the 2% rule is insane lol. duplexes and fourplexes are way off the 2% rule, although some inexpensive SFU get close as well as larger 8+ multiunits.

Anybody has any similar cases? I can still cashflow with 1-1.5%. Where are you more likely to find 2% like properties in the USA

Thanks in advance for any inputs. Maximo

[Jon Holdman]

The 2% rule comes from this calculation:

Rent: $500
Expenses: $250 (50% rule)
NOI: $250
Desired cash flow: $100
Max payment: $150
Max loan: $25,018.74
Ratio: 2.00%

If you're looking at higher rents, it doesn't work. Don't try to apply it.

Rent: $1000
Expenses: $500 (50% rule)
NOI: $500
Desired cash flow: $100
Max payment: 400
Max loan: $66,716.65
Ratio: 1.50%

If also doesn't work if rents are lower than $500

Rent: $300
Expenses: $150 (50% rule)
NOI: $150
Desired cash flow: $100
Max payment: $50
Max loan: $8,339.58
Ratio: 3.60%

Note that I'm using the max loan about (present value of the max payment, 6%, 30 years) as the property price. No fair saying "I have to put in a 25% down payment, so I can bump the price up by the amount of the down payment." Instead, use the amounts calculated above as the price, and then kick in your down payment. Your loan will be less and your return will be higher. The $100 above is the return from the property and the extra return is from your cash.