Is the 2% Rule a Myth for MFH in Sacramento, CA??

[Emil Pinlac]

Hi All! 

For those who have chosen to set up roots and invest in the small, multi-family real estate space in Sacramento - have you been able to find any turnkey duplex/triplex/quadplexes that would fit the 2% rule? 

The 2% Rule as I understand it is this: Monthly rent (rental income charged to your tenants) should be approximately 2% of your property's purchase price. An example would mean that a $350,000 triplex should be renting a total of $7,000 each month (assuming all units are the same 3/2, and that each unit would rent for approx $2,333 each month.)

Doesn't that monthly rate seem a little steep? Or is that just about right as far as what tenants would expect to pay? I see a lot of 2 or 3 bedroom single family homes in my area that are renting in the $1000 - $1800 range, and so I feel like the 2% rule doesn't really work out here. And it only gets worse when you calculate for owner-occupancy - (i.e., in my triplex example above, IF the owner lives in one of the units and rents out the other two, he would effectively either increasing the tenant's rents to $3,500 a month in order to live for free and fulfill the 2% rule, OR keep the prices the same and effectively only be at 1.3% of the purchase price. 

I would love other local investors' perspectives and insights on how they either force appreciation on their small multi-family properties (does everyone in Sac just BRRR?), OR how they justify purchasing these types of small, multi-families even if rules of thumb like the 2% rule don't work out or make sense.

I hope this makes sense - I'm really looking forward to your responses. 

[Aaron K.]

the 2% rule works almost nowhere, especially not in a place like SAC.