2% Question for Rental Properties

[Tonya Weathers]

Hi All! I'm new to REI and I'm trying to understand a few basics. I keep hearing that 2% ROI is the goal. So, when I'm analyzing, that's exactly what I'm looking for. However, I'm not sure if I fully understand. Does the 2% rule apply to the total purchase price of the property? Or does it apply to what I put down? For example, I'm looking at a property that's $130,000. I'm putting down $8,000 on a FHA @ 3.875%. I'm trying to determine how much I should rent the property for in order to make a 2% cash on cash ROI. With these numbers, does it mean I have to rent it for at least $2600 ($130,000/.02) in order to make a 2% ROI? Can someone please clarify? If this is correct, than I actually need to earn at least $2600 in order to make a 2% ROI? Is that right? Can someone please clarify? Thanks!

[Hugo Alves]

@Tonya Weathers You're almost there. The 2% rule = $2,600 like you calculated. A 2% deal would be really great for your ROI but it's not your ROI. Your ROI is calculated as such, using your example. down payment is $8,000 Your rent payments are $2,600 Subtract your expenses (mortgage, insurance, tax, pmi, and any other bills you will pay) let's say that comes out to $2,000. So 2600 - 2000 =600 then multiply your monthly cashflow by 12 months 600 × 12 = 7200 finally divide your yearly cash (7200) by your invested money (down payment) 8000 7200÷8000 = 90% ROI hope this helps