Real Estate Investing Rules You MUST Know (The 2%, 50% & 70% Rules) 

What do you think about these rules? Let us know below!

For newbies, be aware that this is a grossly oversimplified scenario. For one thing, you can't get a mortgage on an investment property without at least 25% down payment. Two, it's easy to see comps for house purchase prices, but it takes a lot of research to understand the comps on rent prices. The trick is to find a place where renting is more expensive than buying, but those places are less common because of this very type of scenario. Three, you have to remember that rent number he's using is supposed to be net income, not gross. So you have to think about costs for taxes, insurance, maintenance and vacancy when you're researching investments. All that said, real estate investing is a good tool for wealth accumulation. But it isn't foolproof.

Early saving and investing money creates compounds growth, it's a beautiful thing.But it takes focus and discipline. You need to be focused enough to commit to a plan and a process.

I used the 1% rule to buy my property in Alaska. Here properties don’t exist at 2% and 1% is really good. I got mine at 1.4%. I will make it up with higher appreciation though!

The 2% rule is nuts. If you expect to buy a $250,000 property and rent it for $5,000, you're on drugs. Most cities in the US the rent for a nice 4 bed 2 bath house is $2 to $3K. Purchase price is going to be $250K to $400K for a standard middle of the road house. Even a fixer-upper is going to be $1O0,000 to $200,000 and you'll put $50K or more in repairs, and you'll be lucky to get $1,500 month rent. That gives you a 0.5% to 1.0% monthly return, rather than the 24% annual return your 2% rule gives you.

I feel like the 2% rule can’t be achieved anymore with home prices these days. Average price of a home in London Ontario is around 500k..nobody would pay close to 10k/month in rent lol

My time is valuable. I love that you get right down to the practical information without any fluff. You get right down to business which values my time, and makes me an instant subscriber! Great videos!

The 1% or 2% rule can be used to figure out if an area is generally overpriced or a seller’s market. Boston or DC are such. I lived in a house worth 750k that rented for 2k a month. Boston market is more of a buy and hold on appreciation type of investment. Most of the properties that give 1.25-2% are not attractive for appreciation purposes 5-7 years down the road.

1- find the positive percentage flow. Rent÷value. The higher, the better 2- half of income goes to expenses 3- find ur mortgage and profit and cash flow

I think these rules mostly apply to low priced areas. Popular coastal areas with large populations and great jobs such as Seattle, San Francisico, Los Angeles, etc. are practically impossible to find 1% rule houses much less 2%. However, those low priced areas do not appreciate much, but the coastal area big job centers do - so what you don't make in cashflow, you do make up and then some in appreciation. Those better areas also tend to have better tenants and less turnover and damage. So the take these rules of thumb with a grain of salt.

the amount of time we spend believing we can't is more thank enough time to learn how you can.

I’ll call mine the 0.8%-1% rule. Put me in several very comfortable cash flow and equity situations.

The 2% Test - the most commonly held rule of thumb - looks at the monthly rent divided by the value of the property. We should be aiming at around 2% for the property to be producing positive cash flow. At 01:01.

I have never seen a 2% deal in my life but I have seen a few close to 1%.

weather you have a small account or large account, it all comes down to money management to get through the losing streaks, a good trading plan, a good method of making profitable trades by analyzing the trade at hand Risk/Reward.

Oh my goodness! I'm so glad you guys are covering slang. You guys should do a series on just slang and terms

Great tips! A suggestion might be to do a video of states where it is most financially favorable to invest in for those just starting out. The cost of properties in cities like New York doesn't lend itself to those who may want to start out on a smaller scale.

Thank you sir. Your videos are extremely helpful especially in my learning stage. I appreciate all that you guys do.

I think a housing crash will happen because all those people who bought homes over asking price, although it was at a low interest rate, they are over their heads. They have no equity if the housing prices continue to go down, and if for whatever reason they cannot afford the house anymore and it goes into foreclosure because even if they try to sell, they will not make any money. I think this will happen to a lot of people especially with the massive layoff predicted for the future and the cost of living rising at a high speed.

I’m not too worried about cash flow. It’s the appreciation of the house, as well as the tenant’s “taking care of the mortgage”. Buying properties in up and coming areas and breaking even for a few years is not bad. Especially when the rent pays the mortgage, and the house value shoots up.

I don't know how people can be more interested in Real estate that in actual all round portfolio investment management.

You make things so easy for me ( i am not educated at all in this type of thing and I am trying to educate myself , and with your videos it’s possible) I’m not bored out of my mind hearing voice lol and I LOVE how you repeat and explain what you mean . Good job !

Thanks for the videos and for “BIGGER POCKETS” !!!!! Brandon you’re a Blessing.

I would respectfully question the 2% rule if I may So here it is my perspective I bought a unit for $280,000 all cash (zero bank finance). The condo is 85 sqm and according to official zonal values (not market prices) is assessed by the municipality for $4,000 per sqm or $340,000 in total. Property taxes are based on the latter price and paid to the municipality annually, discounts on cash payments apply. On June 01 I rent the condo for $1,500 per month (net price, association dues and projected property taxes already subtracted). So, based on the 2% idea I did a really bad investment ... $1,500/$280,000 = 0.5% so a bad investment. However $1,500 per month (net) * 12 / $280,000 (actual buying Price) = 6.4% ROI Add on that the asset appreciation over time and I don’t think this investment is so bad ... it’s bricks & mortar after all. So far and luckily enough I own a few condos in the place where I live and whenever I can get anything around 5.5% to 6.5% return in my investment (net, after taxes and expenses) I go for it without any hesitation. I can be wrong but this is my perspective only. I really liked your other video with the cash flows quadrant, I learnt and I thank you for that.

I think some have missed the point of the video, they are rule of thumb, it helps an investor get a quick snap shot of a potential deal so that the investor can decide quick if the deal is a GO or NO GO, simple as that, there are variables that affect cashflow like expenses of course, taxes, purchase price, but think about it this way, a $1 cashflow is still a positive cashflow. So of course after you run it through the 2% test, you then do more research. It goes back in knowing your market like rental rates which is important.

i've never seen a 1% deal , let along 2%

Great advice. I have an income property and it has a value of 250k, I rent it out for 1500/month and it generates 200$ in cashflow. That is because I purchased the property last year for 193k and put 50k as a downpayment.

Rules of thumb are such a great way to immediately disqualify properties without wasting time conducting a full analysis!

Thank you so much Brandon Turner and Bigger Pockets for complete invaluable information for a newbie. Your enthusiasm, paired with how you break it down for someone who knows nothing, is nothing short of AWESOMENESS! I really appreciate you! Warmly, Amber

I'd like to see the $100k house generating $2k/mo. rent. Is it in Fantasyland? How do you get there?

He just made me change my mind about getting into real estate

I'm happy with the 1% rule... it's almost impossible to find such deals in 2022.... The 2% rule seems unattainable even in 2019, except in the Rustbelt.

I dont know were everyone else lives with dream deals but the average home price her in Cali is $750K!

2% is possible in D and F areas with all section 8 tenants.

I’m not into real estate but I really don’t like the fact that most times the ends are small when compared to for example stocks and hedge funds. On my smallest investment I earn about $4.2-4.5k depending on the market a month.

Can you do a video of building property on vacant land or even tearing down and building new?

As per the 2% rule , we are not able to find any properties in this market. Even 1% is difficult to find. What modification will you suggest in this? Or should we not buy in this market?

Here in NJ Its good to get about 1 percent to 1.25 percent .

Rule 1 in owning rental property.."GET A PROPERTY MANAGER"! Dealing with tenants will get you out of the business real fast.

AirBnB seems to be the only way you can achieve the 2% rule in the US. I would love an updated video regarding this rule/test.

Great video. The one percent rule seems unrealistic in a appreciating market. A good location that appreciates you may not get your cash flow, but you can get great appreciation. I bet I can get that one% rule in inner-city Detroit though.

Ok I have gone back and forth on this question. I understand the fifty percent rule for reserves. Should you do this for every property or with more properties do you reduce this percentage?

Thank you for helping us without charging us ✌✌

2% a month would be 24% a year, meaning you'd pay off the house in about 4-5 years. Don't think anybody would sell a house if he'd get these returns. I live in Europe and getting 10% a year is already outstanding for decent areas.

Cool. Thxs for being clear about these "rules" and explaining they aren't hard and fast and you shouldn't invest capital into a deal solely based off those guides without doing a full analysis. I used those rules of thumb before I bought my two 4-plex's at forclosure. I obviously went deeper into underwriting my deals to make sure they'd pencil considering these buildings needed to be repositioned and still ended up making mistakes and having unknowns happen but good learning experience.

So many people focusing on why it wouldn't work in their city. Where your attention goes your energy flows. Focus on how you could make it work or what the solutions could be, stop dwelling and playing the victim card. In my city it is not great for real estate investing, so I am looking in another city in another country and I am trying to make it happen!

How can people give a thumbs down To your videos ?? Your offering priceless information. Thank you, know I finally know about the 2%rule I see people Taking about.

Wow... this really opened my eyes to how terrible my area is for real estate investing. I've been interested in the idea for a while and started to look into it more seriously in the past couple weeks. Properties around here (Stoney Creek, Ontario, Canada) range $600,000 - $800,000 with a rental income of $2000 - $2500. That comes in around 0.3%... I would be looking at a mortgage payment around $1700 monthly so that also fails the 50% rule... time to re-evaluate.

How do you know how much a home will rent for when using the 2% rule? Do you search up comparable homes for rent at the moment??

In California you won't meet the 2% or even 1% rule. You can buy a 300k house & rehab it for 50k to make it worth 450k and only get $2 - $2.5k in rent. That rule is for crack houses in the ghetto.

2% rule? Everyone would be doing it if this was true. In MO I have 3 rentals - 0.73%, 0.73% and 0.77%. And here's a surprise, my biggest cash cow by a long shot, is one of the 0.73% properties. While this rule is a reasonable and quick assessment to use, I think a more realistic target is 1%, depending on area. Using the 2% rule, you'll overlook pure gems. I use an excel spreadsheet. All I punch in are rent, taxes, management fees, HOA, insurance and it delivers an annual, monthly and weekly income amount at the bottom. As long as it's a positive cash flow in a desirable neighborhood, I'm all in. This method is more in line with the 50% rule. A good, informative video, thank you.

Thank you very much for this big piece of information. This was one of the most informative podcasts I've seen of Biggerspockets podcasts so far. I like a lot of your stuff. Excited about going you guys.

Where in the country are investors getting 2%?

Where are you finding these 1-2%'s that youre speaking of

Bro!! I'm so glad I found you! I appreciate YOU for all the value you bring us!

Got a property cashflowing only 1000k net. With all expenses throughout the last 4 years I've only spent about 5k in repairs and maintenance. Bought for 245k now worth 500k I think it's time to sell

Brandon such sound advice, just started following you a month ago and working my way down the podcast from top to bottom. My house doesnt make sense as a rental according to the 2% rule but makes alot of sense for a Heloc and doing a BRRRR, what do you think.

I’m sorry but the 2% rule seems absurd. You’re telling me if I purchase a home for $200,000 I will need to shoot for 2% rental ($4,000) a month. Even at 1% it still seems unreasonable?

Bruh! That music is sick! Also love the information! Whole package content.

In your 50% example. What do you do with the 400 excess? How much do you put away for cap x expenses or unexpected repairs? Do you just take all 400 and then worry about repairs etc after by getting a loan for it or do you put 50% of the 400 away every month to save for extra expenses?

$2000 monthly/$200k price... Nothing passes that test in Norway. $300k price for a small 1 bedroom apartment will rent out for about $1200.

I need to move to this area where you can get 2% monthly rent to purchase price!

Thanks for that. I didn’t know that the 70% rule can change depending on so many factors like you mentioned

For the 2% rule in the math should you use the price of the house you purchased it for or the price of the house you purchased it for + renovations if you plan on doing renovations.

Nice strategy i must say. I didn't earn as much as this video claim but i earn about 3250usd every week and i don't do that using video

Too good to be ture, I just bought 620k house and can't only expect to get $3k rent. This is reality

Listen and sometimes watch during my treadmill run and 👌🏽👌🏽 Thanks for all the knowledge you be putting out!

Don't know if You mixed and switched examples but You lost me on the 70% rule. I think it's important for beginners to know that Your example did work out to a positive cash profit in the end. 70% of 300K is 210K, that's a 90K spread (not 50K spread nor 50K ARV), left over to pay out commissions, holding cost and yourself (profit). If like you said, After Rehab Value is 300K minus 90k (30%) spread equals 210K (70%) minus "50K rehab" equals 160K purchase price. Then simply take the spread 90K Minus 24K (8% of 300K) for Realtor commissions, equals 66K, minus 9K holding cost for 6 months at 11% on 168K, which is 80% of 210K (assuming you came in to the deal with 20% of acquisition and rahab), so your left over NET PROFIT is 57K, (before uncle Sam shows up :)

These rules are really useful when you have a bunch of properties you want to analyze quickly.

I’m making 500 a month on a duplex is it better to save up and get another multi family or pay down and use equity to get the next?

I think if you are an investor - it’s very very difficult to find a place that fits these criteria. And there’s a lot of exceptions. Take the 2% rule - if I buy a house for $400000, I need to make $8000 a month to hit that threshold…near impossible. Take the 50% rule. Say my mortgage is $2500 and I rent for $4000. My expenses would exceed my income. Most landlords are just not making enough for these scenarios - they make their money on the equity gained…which is most important long term.

I have one rule only: Net ROE >= local market renting yield. This means : 12x net monthly rent (after taxes and annual mortgage repayments, utilities) / down payment (My equity) >= 1.5% / 2%.

I doubt the accuracy of these rules.. actually getting >1% is great work imo

So are you telling me that there are people that rent houses for a 2% of the value?? Do you realize that with that money they would pay out the house in 4 years and 2 months??

In my community in Wisconsin a house that costs 400k gets 1,500 in rent.

I guess i don't understand how NO ONE in the comments has found the 2% rule to work. ALL of my rentals are at or above 2% of MY COST. These aren't "shithole" properties as some of you would say either. I have some of the nicest college/young professional rentals in my town. Most of the small multi family/single family households. I do have a FEW houses that i bought and were rent ready with hardly any renovation that i get CLOSE to 2% on (Duplex i bought for $86,000 and rents for $1,500/m i.e. 1.7%). But my biggest money makers were rehab properties. Example: I bought a house for 30k it needed significant amount of work, but i did a lot of the work myself. After redoing everything in that house and spending 25K in materials and SOME labor the house appraised for 105k. My cost was 55k! and it rents for $1,800/m which if my math is correct is 3.2%. This was a REALLY good buy for me and i replicated that SAME scenario (give or take a few thousand dollars on acquisition and cost) 7 more times so far! It is all in the purchase. And most of my equity came in the form of SWEAT. 2% is impossible with turn key investments, but i don't think that's what BP is talking about. I know most people don't have the ability to do this full time, but when you do you can create 3+% properties.

Uh. I'm new to RE and all, but 2% seems absolutely impossible. Even 1% seems like a stretch. Are there really markets that can see a 2% return?

The 2% isn’t a possibility anymore. You’d be lucky to maybe get 0.5%.

I listen to your podcasts all the time. I love how clear and encouraging you are. My parents invested in properties when I was a kid but I'm only now learning how to do this. I'm so excited! Thank you!

When we look at what the "monthly rent" is, should we use the "estimated rent" that is listed on Zillow and Redfin? Cause when I use that, it seems to almost never meet the 1% rule. Thanks!

Great vid

Never heard of the 2% thing before this! Thanks

I have a question. According to the 50% rule, are you saying that on average the rental income should be at least twice the mortgage payment? Thanks

I love the pronunciation of "roof." It makes me feel like I'm back home in Idaho.

So you're saying I should look for a $100K property that I can rent for $2,000/month? Oh, okay. Thanks for the tip.

None of those rules work in the state of Colorado. As long as your numbers work and you are cash-flowing, these rules won't matter. I have 7 rentals and none are in the red.

I look at it differently My formula I use the annual money I paid towards the mortgage annually and the money I’m renting my property for ... example money spend every year on the mortgage 1000.00 a month which is 12,000.00 annually. Renting the place for 1300.00 . 1300/12000= 10.8%. Annually On the investment . Unless ur an expert in stocks u won’t get that type of return investing in the stock market. But real estate is alway king because it’s a tangible asset that I can use in many ways I can increase my profits by living in one section rent free while renting the other .

When it comes to the 2% rule. When you say value of the property. Do you mean what you paid for it or it's actual value. Because a property could cost you $200,000 but it's valued at let's say $280,000. So should I divide the monthly by the actual value or how much I paid for it ?

your living in a land far away from California with those prices.

Where's that "ruf" instead of "roof" accent from?

I AM SO GRATEFUL FOR YOUR VIDEOS! THX ! I WISH U ALL THE BEST

The 70% depends on area, I know areas where investors are willing to buy the property at 80% (minus expenses)

In Snohomish county Wa this is not possible.

How could you have a rule of 70% if it’s unpractical

Newbie Question (if you don't respond to this I won't be offended): I can make any property positive cash flow with the Four Square Method if I pay 100% cash and thus no P & I in expenses; but then the same property is super negative if I only calculate 20% or even 50% down. Do y'all have a rule of thumb or advice on how much I should put down on a property in determining the expenses, cash flow and cash on cash squares? Thank you so much for all of your free advice!!!

Very helpful. For the 2% and 50% rules, that doesn't change with appreciation, right? It's always based on the purchase price.

So that will never happen here in Ontario Canada lol. At least where I am in Ottawa, Single houses are going for 400k+ and renting for under $2,500 a month.

Where did you get that instrumental, that shit bumps.

Thanks Brandon. I was looking at a 700k property and talked to the realtor about the 70% rule. He said he would use 80% on this one. Now I understand a little bit why. Question: What "rule of thumb" would you use for a sliding scale on 70% rule? (ie. 200k house 70% ARV, 300k house 75% ARV, 400k house 80%? I just made up those numbers....) Thanks Bro.

Like you mentioned, these rules/tests are great ways to just eliminate surface dead weight properties. Don't have a lot of time to waste. Who does your background 🎶? Great taste!