Understanding the 2% Rule in Real Estate Investing
When you are determining the amount of rent to charge your tenants on residential rental property, there are several factors to consider. These include the location of the property, as well as the size of the property, amenities it offers, and what other similar properties in the area are charging.
Some investors also use various rules of thumb, such as the 2% Rule. The 2% Rule states that the monthly amount of rent for an investment property should be either equal to or above 2% of the property’s purchase price.
As an example, if you purchased a property for $100,000, the monthly rent you charge the tenant(s) should be at least $2,000 per month, based on the 2% Rule. That’s because 2% of $100,000 is $2,000. As a property increases in value over time, the amount of the rent could increase, corresponding to the higher value of the home or unit.
It is important to note, though, that just arbitrarily using ONLY the 2% Rule to set the rent price, without any other research on similar rental properties in the surrounding vicinity, is not recommended.
Regardless of the size and location of your rental properties, conducting all of the work yourself can be fairly time-consuming. So, you need to factor in how much this time is “costing” you, and decide whether or not to continue, or instead look for other ways of getting the jobs done.
One option is to hire a property manager. This can allow you to delegate tasks like rent collection, maintaining the property, and responding to emergencies. A property manager with experience can also assist you with setting the proper monthly rent price, based on more in-depth research about the property and its location.
So, if you own residential real estate in Orlando and/or the surrounding locale, contact us and we will provide you with more details on how working with an experienced property manager can truly pay off for you.