I've been analyzing a few properties every day, but I can never seem to find a property that will get me above the 2% test (Turner: The Book on Rental Property Investing, pg. 124). In my area (Manitowoc/Sheboygan, WI), rental units are going for around the $800/month mark depending on the property. But when analyzing a duplex or SFR, the 2% test rarely gives me more then 1.7%. I've analyzed a few dozen properties already and nothing even comes close to the 2%.
How do I spot better deals or am I just in a bad area right now and need to look at farther away areas?
Following Brandon Turner's book, I take the estimated monthly income, and divide it by the total purchase cost of the property to give me the percentage. If this percentage is above 2% than the property warrants further study, but most properties are no where near that mark. The first test is the 50% rule of thumb where I take the estimated monthly income, divide that by 2 and then subtract the monthly mortgage. If the 50% rule of thumb claims a positive cash flow, I move to the 2% test. If the 2% test passes (and it hasn't yet), I will then spend more time analyzing the property.
