2% Rule?

[Heath S.]

I have a few rental properties as of now and I am looking to purchase another one in the near future.  However since I became a member of BP I have read a lot about the 2% rule and out of my 5 rentals, not one of them meets that rule and I have not come across anything that looks to meet that criteria.  I am in the Phoenix Market and would love for someone to show me a property that rents for 2% of the price.  I always looked at cash on cash and tried to hit 20% return on cash, but I am interested to hear any examples of homes that people have bought or any that they know of for sale that meet the 2% rule.

Please don't tell me about the house that you bought for 35K in 2010 or 2011 that rents for $700.  I am more looking for examples in todays market.  

Thanks!!!

[Jon Holdman]

The 2% rule is only relevant for rents around $500 in any case.  Its based on wanting to get $100 in cash flow assuming 100% financing at about 6% with a 30 year fixed loan and allocating 50% of rents to expenses, capital and vacancy.  If your rents are, say, $1500, its a lot easier to extract $100 of real cash flow than it is from $500, so this ratio can be lower.