Arebelspy
Assuming I'm the Joe, I stand by that statement (and if I'm not, I still agree, sounds like a very smart fellow
...certainly is a very smart fellow. Very chuffed to have his feedback. Thanks so much!
Arebelspy
In almost every case identifying a market before a property is the way to go.
This piece of advice really struck home with me, I realised I'd been it approaching it the other way around. So, I've done some digging and found out:
Market: shrinking population since 1990s, increased number of rentals on market and less privately owned, population 2,000, found 2 rentals in my range that haven't rented since jan and 5 since may. Then did further research and found out it tends to have gang members renting in the nearby area which was a bit of a shock as it came across as a family style area. So, I'm extremely glad you gave me this advice! It really puts a completely different perspective on things.
Honobob
Cheap does not mean a "deal"... Find out what the percentage is for your area AND the type of property you will invest in.
Arebelspy
Since you seem to be looking close to home, definitely get familiar with what is the norm for that market, then decide if that norm is worth investing in to you.
Thank you honobob and arebelspy, you both hit the nail on the head! I have a piece of land in my area (value 200k, 138k left on the mortgage). It won't sell, but I have just received permission from council to build a duplex (4 bedroom and 2 bedroom). I was planning to live in one with flat mates and rent out the other. But I was worried about the 2% rule as it definitely doesn't match it. I would also have to get finance for $488,000 at 5.95% (fixed 3 years). The length of mortgage term would depend on the projected cash flow, for instance if there was no cash flow, I could cover it on my income alone over a 25 year term.
House: $530,000 (2 units = 2 bedroom and a 4 bedroom)
Total valuation $570,000 = land 200k, house 370k)
Finance: $36,000 annually ($3,000 monthly)
Gross Rent: $39,260 annually ($3,271 monthly)
50% rule = 19,630 annually ($1,635 monthly)
Minus finance = negative -$16,370 annually
2% rule $3,271x50 = $163,550
Market: slowly growing population, same proportion of rentals to privately owned as in 1990s, population 6,000, all rentals in my range are currently rented within a month.
Gross rent multiplier: 13.4? (Honobob is this correct?)
Cap rate: 3.7? (Arebelspy is this correct? Honobob I know its only an estimate for now and will look into all the research you mentioned next.)
What are your thoughts on the 2% rule in a case like this? I have looked at similar houses in the area and they come in at 500k-650k for comparable rents.