The two percent rule is another guideline some real estate investors use when evaluating potential rental properties. According to this guideline, a property should generate monthly rent equal to about two percent of its purchase price.
For example, a one hundred fifty thousand dollar property would ideally rent for about three thousand dollars per month under this guideline.
Like other investing guidelines, the two percent rule is meant to provide a quick screening tool rather than a complete financial analysis. It does not account for expenses, financing costs, maintenance, vacancies, or local market conditions.
In many markets today, especially higher priced areas, achieving the two percent rule can be difficult. Investors typically combine this guideline with other financial metrics when evaluating deals.