Multi-Family Deal

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Disclaimer: I have want to start investing and have listened to many podcasts. I have not actually invested yet but want to start. I am a REA and have access to our MLS.

I have heard of the 2% rule and think I understand it. The goal is to rent a property for 2% of what you have invested in it (Purchase price + Renovations) if I understand that correctly.

There is a deal for 9 condos/apartments that someone is trying to sell. The price is $265,000 and Gross Rent is $61,380 and NET is $44,492. 

Is the 2% rule on Gross or NET and does this seem like a good deal based on the few details I have provided? Most of the are already rented out. Thanks!

[Jared K.]

I have owned multi units for over 11yrs and I believe they are the way to go. I look at several formulas when I do an evaluation but the first thing I look at is the market. These figures don't work in every market so you have to ask yourself "Do these #'s work in my market?" or you could over spend. In some markets this would be a good deal and some markets it would not. Some places in the country your return should be higher than others so you might get a higher % return on rents. Not saying the formula don't work, just not a big fan of it. Look at some recent sales, find out what rents are for the properties, then figure cap rate for each, look at your property area based on that and run the #'s. This should give you a more in depth idea what true returns are for your property's area.

Since your a Realtor you have a leg up on market rents, desired rent areas, sales prices, and average vacancy rates for the area of this property so that is great! I bought my first multi at 26yrs old and never looked back, been 11yrs ago. The only way to own one is to just do it and learn along the way, just buy smart and run those #'s!!!  Once you own it for a while you will look back and laugh at how nervous you were to buy it..lol.

Best of luck.