Real Estate Deal Analysis & Advice
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated over 7 years ago,
50% Rule/ 2% Rule in expensive areas -> is my reasoning correct?
I'm looking at properties in Chicago and these rules of thumb are basically impossible. I've been listening to the podcasts and reading about the deals, and the numbers are always for these cheap areas, whereas I'm looking at reasonably good neighborhoods in Chicago.
My thinking is that while the property values will be much higher in Chicago, the rent won't be similarly higher (i.e. I can get 800/month rent on a $50,000 house in Texas, but there's no way I'm getting 8,000/month rent on the typical $500,000 property in Chicago, with 4,000 or so being more normal). I doubt this means nobody is making money in Chicago rentals.
My thinking is this: the 50% rule might mean I can expect 400/month in expenses in Texas, but I'm not going to see $2,000/month in expenses in Chicago. Fixing the same number of toilets isn't going to be proportionally more expensive, so that kind of expense will be lower as a proportion of the real estate value/gross rent.
Am I on the right track here?