Hello biggerpockets.com!

I found this forum today, and I've been playing with your 50% and 2% rules, especially in regards to formulas I already know like cap rate. Here's some things I've noticed:

cap rate = 12 * (monthly_rent - monthly_expenses) / cost

using the 50% rule that "monthly_expenses ~= 50% * monthly_rent" we have

cap rate = 12 * 0.5 * monthly_rent / cost

cap rate = 6 * monthly_rent / cost

using the 2% rule that "monthly_rent / cost >= 2%" we have

cap rate >= 6 * 2%

cap rate >= 12%

similarly, using a 1.5% rule would be a cap rate of 6 * 1.5% => 9%.

So the 2% rule is an easy test to see if a property has a cap rate above 12%.

It's generally agreed that different regions and types of real estate investments can have different cap rates, which implies to me that the 2% rule (12% cap rate rule) might not apply to all locations. For example, I suspect 2% rule properties are easy to find in the rust belt, but not in NYC.