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Updated over 9 years ago on . Most recent reply

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Jason Holden
  • Garland, TX
0
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18
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Getting to 2%

Jason Holden
  • Garland, TX
Posted

Hey all, I'm new here and am just beginning to research real estate investing as a landlord.

I've heard about the 2% rule and the 50% rule. 50% is golden, I get it. Count on a rental to be a lot of work. The 2% rule I'm fuzzy on.

According to what I've read, if I'm looking to purchase a home for the purposes of fixing it up and renting it, I need to make sure I can charge 2% of the home's value in rent. In the Dallas market - one of the lowest-priced house markets in the U.S. from what I understand - that would translate to buying a home for less than half of what the homes around it cost. Example:

Average home price in upscale neighborhood: $270k

Average rent in upscale neighborhood: $1,800/mo

Max home worth per the 2% rule: $90k

After searching online over the past couple of weeks (Zillow, Redfin, etc) I've found 2 homes listed below 90k, but I could expect *maybe* 1200/mo max in rent.

What am I missing? Is this a bad market? A bad time to become a landlord? Do good deals only come along once every few months? Are there better ways to search I'm not aware of?

Also, do I factor in the cost of making the home liveable into the equation (i.e. does rent need to be 2% of [purchase price + repairs])?

Thanks.

Most Popular Reply

User Stats

465
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170
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Andy Robison
  • Investor
  • Kansas City, MO
170
Votes |
465
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Andy Robison
  • Investor
  • Kansas City, MO
Replied

Rule of thumb is they key word. In my market 1 -1.5% is normal. Those 2%'s are ideal numbers. You will see some people who are happy getting just a $100 per door after figuring everything in. Its a general rule of thumb to see if the "deal" is worth looking further into. Upscale neighborhoods will rarely meet these rules of thumb but... they will provide a better quality tenant with less turn over.

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