I haven't seen a 2% rule anywhere realistic and have been assuming that to be 1% ages now.Just for giggles, I analyzed thispropertyhttp://www.trulia.com/property/3229148553-1-Quimby...renthttps://www.rentometer.com/results/tt_kOY8yPiIAnalysis Acquisition Cost Breakdown Purchase Price $150,000 Downpayment $30,000 Finance Amount $120,000 Improvements $7,000 Closing Costs $4,500 Total Cost $161,500 Cash Outlay $41,500 Financing Details Downpayment 20.00% Interest Rate % (anual) 4.50% Closing cost % 3.00% Loan Period (years) 30 Monthly Mortage Payments $608 Monthly Annual Monthly Annual Revenues conservative optimistic Gross Scheduled Income 1,200 $14,400 $1,500 $18,000 Vacancy Rate (% Rent) 10.00% 120 $1,440 8.30% $125 $1,494 Net Scheduled Income 1,080 $12,960 $1,376 $16,506 Other Income 0 $0 $0 $0 Gross Operating Income 1,080 $12,960 $1,376 $16,506 Operating Expenses Propperty Taxes (annual) $148 $1,776 $148 $1,776 Insurance (annual) $37 $444 $37 $444 Property Mgmt (% Rent) 10.00% $120 $1,440 8.00% $120 $1,440 Repairs (annual) 10.00% $120 $1,440 5.00% $75 $900 CapEx (annual) 5.00% $60 $720 2.50% $38 $450 HOA (annual) $0 $0 $0 $0 Utilities (annual) $0 $0 $0 $0 Landscaping/snow (monthly) $0 $0 $0 $0 Other 1 (annual) $0 $0 $0 $0 Other 2 (monthly) $0 $0 $0 $0 Total Operating Expenses $485 $5,820 $418 $5,010 con opt 1% rule 0.80% 1.00% 50% rule 44.91% 30.35% NOI $7,140 $11,496 Cash Flow annual -$156 $4,200 Cash Flow monthly -$13 $350 Cap Rate 5% 8% CoC 0% 10% Not to say that I would touch this property as it doesn't cash flow with my conservative criteria, but both conservative and optimistic criteria are showing this falling within the 50% rule and under the optimistic scenario (which isn't complete fantasy) the place cash flows.

But what to do in a market where you want to grow a portfolio, but rents in are only a fraction of what is needed to even cover the cost of a property, and cashflow is a distant fantasy?  

In my fantasy, we'd buy the bigger one first so we could do 3.5% down with an FHA.

There is no deal.The seller is living in fantasy land and is not yet desperate enough to accept an offer that would give you a good amount of profit.

We are seeing a lot more places on the market for values that suggest the seller or listing agent vacations on Fantasy Island. 

For an inexperienced would be investor to believe he can do the same is fantasy. 

Obviously the deal looks far better at $530,471, but should I be using the NOI after prop mgmt fees are subtracted, or am I living in fantasy land? 

The only sellers on loopnet are fantasy seekers that are listing stuff at their "I don't want to sell, but I would at THIS price" pricing.That's why the only stuff on there is LoopRot*(*tm for 'LoopRot' coming soon :)

Perhaps the way I phrased the "subject" of the post made it feel like one of those lotto fantasies I'm sure we all have from time to time haha. 

I don't want to dash your hopes but buying a single note from an institutional investor lender is fantasy.