2% Rule on SFR

[Samantha M.]

Basic question about the 2% rule on SFR, which states rent must be 2% of the properties purchase price.

Is the 2% based solely on the purchase price or does it include repairs as well. For instance.

1) Purchase Price (50k x .02) = 1,000 minimum rent required
or
2) Purchase Price + Repairs (50k + 20k = 70k x .02) = 1,400 minimum rent required

Thanks for clarification

[Jon Holdman]

It would include purchase plus repairs.

However, its chock full of assumptions. In particular, that the rent is around $500. If you apply the 50% rule (50% of scheduled rents go to vacancy, expenses, and capital), then subtract your debt service (P&I only, not taxes or insurance) you'll find that you can pay more than $50K for $1000 in rent and still have positive cash flow. I really dislike the 2% rule. Especially at today's low interest rates.