Please Find Where I'm Wrong Here

[Account Closed]

I'm struggling a little bit with this 2% rule.  In the past I thought it was actually a 1% rule, and those numbers made sense.  But 2%--I don't think I've ever seen a deal this good in my area except in the absolute slums. 

Anyway, let me give you an example of an actual property I'm looking at (just looking at online, not looking at as in thinking of buying).  It doesn't come close to the 2% rule, yet seems to cash flow quite well.

Fourplex

Of the four units, 1 is vacant, 2 are renting for 450, one is renting for 475

I will base the rent on the lesser number to be conservative, so: 450 x 4 =1800

Now, as far as I know, the 2% rule doesn't take vacancy into account.  It is simply monthly rent/sale price.  So I won't take that into account for the 2%, but I will take the vacancy rate of the area into account when I do my cash flow calculation, which actually will work against my assertion that the house will still cash flow with a sales price that well exceeds the 2% rule.

Okay, so with a gross rent of 1800, that means the sale price needs to be 90k.  The actual list price is 136k.  So on first glance the 2% rule says run from this deal.  But let me run my calculation of just what it will cash flow.

25% down payment: $34,000

Real rent: 1800 x 22% vacancy = 1404

Mortgage: 449

Taxes: 278.83

Maintenance: 180 (10% of rent, using the higher unmodded rent)

Insurance: 83.33 (estimate of $1000 a year, which is probably high because it is close to the insurance rates for my current rentals which are worth much more)

This results in a monthly profit of 412.83. That's an annual profit of 4954. Investment was 34k, so ROI in first year is 14.57%. Doesn't take into account any tax advantages or equity gained.

So as you can see, my calculations seem to indicate that this is a great deal, even though it doesn't come close to the 2% rule.  Where is my mistake?