Is 2% rule still applicable?

[David Miller]

Hello, I am new to real estate investing and this is my first post, so I apologize if I’m posting in the wrong location!

I have read a few books and done quite a bit of research, but still have a ton to learn! My plan is to purchase multi family units (smaller apartment or a couple townhomes). I have analyzed over 70 apartments and townhomes and have not found any that meet the 2% rule, in fact, most are not even close. Is anyone out there finding newer (20 years old or less) multi family units that meet this rule? I’ve done a lot of searching on Loopnet, google, Craigslist, local papers, etc. Any advice or direction would be appreciated!

[Ben Zimmerman]

The 2% rule should have never been a 'rule' and I wish it would die off, just like the 1% rule, and every other rule that gets thrown around these forums.  BP has readers from all over the nation, in many different types of markets.  Readers who are trying to learn and educate themselves hear about these 'rules' and think that they are true, when in reality that number may have never been appropriate for their geographic location (either too high or too low), let alone be accurate a decade after the podcast was made during the greatest real estate crash in the history of mankind.  Instead of teaching people accurate ways to calculate their expenses, we advocate for people to use these shortcut rules that could be wildly inappropriate in our market.  

Also I think that anyone who claims they won't get out of bed for less than 3-5% is being very disingenuous to the overall question at hand.  While you may be able to get 5% returns by buying 100 year old homes for 10-15k each and then renting them for 500-750, that is nowhere close to the norm in the US, and does not accurately portray the financial prospects of owning homes as old as these.  Unless you are buying super cheap homes for under 100k each, or are purchasing homes in areas with consistently declining population, you will likely not hit these 'rules'.

The median home in the US is valued at 231k according to zillow.  If you are buying anything even remotely close to that you will not reach this mythical 2% target that should have never existed to begin with.