I am just starting to research buying a rental and I am trying to figure out if my local area has good deals.
A quick look in a local paper has 13 single family and townhouses at an average rent of $1112 a month, which looks affordable with the median income of $53,751.
When I look at the 2% rule if I use $1200 a month rent I get a $54,000 total cost for the property, and nothing is that cheap here. I paid $120,000 for my single family house. The same house without the acre of land would go for less.
I was considering a duplex (or 3 or 4) to spread the risk a bit for my first rental, do you still use the 2% rule to get a general idea if the property will make money? Rent for something like this is probably $6-800 per apartment, but I couldn't find any ads this week.
1%, 2%, 50% rules of thumb are not particularly useful starting out. Take some time and crunch the numbers in your area.
Income:
Rent:
Expenses:
P&I:
T&I:
HOA&misc:
Management (10% of rent):
Maintenance (10% of rent):
CapEx (5% for condos/ 10% for SFH/MFH):
Vacancy (10% of rent):
Find a few places that at first blush you think might be good investments, then crunch the numbers. P&I can be calculated via a mortgage calculator. Taxes can be found on your county or city's site. For insurance, ask your current insurance company to give you some quotes for targeted properties. Then see what monthly profit number falls out. A common minimum for many investors is $200/door per month. After you do the long hand version of this for a bunch of properties, you will see a percentage that you will be able to use to quickly determine if a property is worth serious consideration. All this takes a little time but you're making a big investment; it's worth investing some time as well as $.
As Yttrium mentioned 2%, if found at all, is going to be in the worst areas that are most probably going to make you hate being a landlord. Start with B/B+ areas.