2% rule before buying a rental property?

[Dawal Limbachia]

Hello everyone,
In one of the BP podcast, Brandon Turner said that the 2% rule works for him in general. According to him, for example, if the property is listed for $100k, then the expected rent should be at least 2k per month. Therefore, 2% return on a buying price is a good deal. But, here in Chicago and neighboring areas, the 2% rule doesn't make sense unless if I misunderstood Brandon Turner. Here in my area, the return on rental income is more like 1% only if the property is new or in great condition. Otherwise, majority of the time it is even less than 1%. So I would like to know if I am missing anything here or if there are any rental investors who follow the same rule.

[Sharon Rosendahl]

My quick and dirty calculation is 1% of purchase. There is so much more that goes into figuring out whether you ought to buy something that one shouldn't base it on a single metric. I have found that if I don't get at least 1% I might as well not own it right now. I know some people buy for appreciation and worry less about rent but I can't afford a bunch of non-cashflowing properties so I don't do that.That doesn't mean I don't consider something that is lower % but around me right now a typical family 3/2 1500 sf is pretty much starting at $400k and is renting for $2000. I have no way to make this work. So .95% may be workable or maybe you can offer less or whatever but .5% is unlikely to work and even if you have cash, your cash on cash return would be low. I'd rather throw it into index funds, get about 8% and not deal with tenants.

Study up on the different calculations you can use to analyze your business. Play with the BP calculators. Do dry runs using stuff you find listed in your area and find rent for a similar house (Zillow can be helpful with their rent estimate, I don't blindly accept those in real life but they would be fine for practicing). Plug things into a calculator and see what happens. Also try scenarios like, your tenant calls in the middle of the night with a broken water heater etc to see if you will have enough reserves to afford repairs.