The 2% rule is the most brilliant ever

[Ned Carey]

The 2% rule  TEST is a quick screening tool for rentals. It says:

I really don't know when People here started using 2%. Traditionally it has been 1% but in normal interest rate climates 1% does not work very well.  

The point is, once you figure the right percentage for your goals and your market. Then this can quickly rule out 90% of deals with a quick top of your head calculation. At any given time there are thousands  of properties on the market. You obviously can't do an in depth analysis of all of them so you need a quick screening tool to eliminate the ones that are simply not even close to a deal. 

That is exactly what this tool is designed to do no more, no less.

Don't let the naysayers tell you every property deserves an in depth analysis. They want to take away a valuable screening tool. Time is your most important asset.

[Dawn Anastasi]

I personally like the 2% rule for what it is.  I don't like it for what it's not.  It's definitely not the one and only metric for analyzing a property's worth.  It's a good indicator of cash flow.  But it's not a good indicator for a property's "headache value".

If a property scores high on the "2% rule" metric, and low on the "headache value" metric, then it's definitely worth an investigation.

What's the "headache value"?  Would I want to walk the neighborhood by myself at night?  If not, the headache value is higher because if it's a bad area I'm not going to be able to get good tenants and therefore that would give me a headache. There's a lot of crappy properties in Milwaukee and its important to know what would make a good solid rental versus what's just going to be a headache.