What range does the 2% rule work

[Jimmy H.]

In what price range does the 2% rule work most efficiently. Is it best for duplex, SFR, or 5+?

[Mike McKinzie]

That is a very good question. Jon gave an excellent example with numbers.

I challenge anyone on BP to purchase a 3-5 year old home in a middle class neighborhood for $100,000 and then rent it out for $2,000 a month (with no deferred maintenance or repairs required). While there might be the rare seller, REO, short sale or other extreme situation where this might apply, this would be a very tough investment to find. If you wanted better cash flow, you might be able to purchase a 2, 3 or 4 plex in a lower class neighborhood for $100,000 and get $2,000 a month gross rent. Your chance of appreciation would be lower but your monthly cash flow is higher. Your expenses would also be higher in a multi vs a SFR.

As a general rule, when it comes to SFR's, the higher the price, the less likely you will be able to obtain 2% in gross monthly rent. Not too many $1,000,000 homes would rent for $20,000 a month. The last $20,000 monthly rent I saw was on a $12,000,000 home.

The best way to get the 2% rule to work is in the $20,000 to $50,000 price range.