Is the 2% rule true for single family home rentals?

[Nick Leamon]

So I read the beginners guide, and have been hearing a lot about this 2% rule since I started looking around Bigger pockets, and my question is, is that really true for single family home rentals?

My grandfather, who also invests in real estate, and who has most of his life has always told me that rent should be about 1% is that too low? or is it closer to 1% for single family homes and 2% for multifamily units? I'm not sure that 2% is realistic in my area.

For example i bought a house for $142,000

I put 4.5% down (FHA financed)

My monthly payment is $1150 with taxes insurance and PMI included (and after 3.5 more years the $150 of PMI will go away)

and it is currently rented for $1395 a month (this is below market value, but I'm more interested in quality, long term, low turnover tenets)

so i am currently cash flowing $245/month and it will be $395/month when the PMI falls off, and I am barely over 1% of the loan amount.

What am I missing?

Thanks for the help

[Mark Ferguson]

I tend to think 1.2 to 1.3% in my area is a good buy, but every area is different and price ranges are different. I can buy a home that will meet the 2% rule here, but it will be in the lowest valued area in town with high turnover and high maintenance. I like middle of the road single family rentals with less maintenance and turnover.

One thing the 2% rule does not consider is tax rates in different areas, our tax rate is about .05% or a houses value where most areas are much higher. The type of loan, interest rates, PMI all affect your cash flow.