Yet another 2% question!

[Tony Reale]

Of course it has been covered that the 2% rule is somewhat area dependent, So wanting to discuss my area "Nashville TN" Specifically but may be a question others can benefit from.

I seem to have no problem meeting the 2% rule but the houses are low cost, very low income, and not really desirable locations. I do not foresee me enjoying being this type of landlord.

The nicer more stable neighborhoods with the standard 3 br. 2 baths 2% seems to be hard to come by. "Yes I know it isn't impossible" 1.5% does seem attainable fairly regularly.

My question for all of the landlords out there is which of the above 2 scenarios would you prefer. 2% and possibly volatile or less than 2% with "hopefully" less volatility.

Also any native to Nashville that may know more than me please feel free to chime in.

[Aaron Montague]

A bit of caution for looking too deeply at the 2% rule against low income, low value properties:

Replacing a roof still costs at least $4500 when you contract it out. (Yes there are REALLY small jobs, but there are no roof replacements that cost $650 when contracted). The point is that the 2% rule doesn't cover maintenance costs well in low purchase price situations. I set my minimum, per month savings for Cap Ex items at $150 per building.

This number has worked well for me for 10+ years. Okay, it didn't exist for 2 years, then I had my "Holy ****" moment and it has worked for 8 years.

The general math behind this:

22k purchase price

2% rule = $440/month in rent

$440
-$44 (PM @ 10%)
-$44 (vacancy @ 10%)
-$89 (mortgage 22k | 25% down | 5% int | 30 years)
-50 (insurance @ 600/year)
-50 (taxes @ 600/year)
---------
$163 per month

The problem here is that you haven't accounted for anything for the rainy days when the rain is on the inside. My argument against the deal above is that there should be another $150/month saved for broken any/everything. Even tweaking the numbers above a bit, you're not going to get close to the $150 mark I like. And THEN you have to carve out profit somewhere. Long term this deal looks like a $13/month gainer, not awesome.