The 1 % and 2% Rules of Investment

2% rule

Since Property Management of Virginia has been in the business of not only managing properties but buying them as well, we have decades of experience to help you through the process.  We want to maximize your return on investment (ROI) as much as you do so here are a couple of things to keep in mind.

In the industry, there are some things called the 1% and 2% investment property rules.  These rules determine how much income a rental property should hypothetically be able to generate.

For example, using the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.

EXAMPLE: So if you purchase a property for $200,000, you would need to rent the property for $4,000 a month to see a positive cash flow using the 2% rule.

The 1% rule is similar to the 2% rule as it states that a property's monthly rent must be at least 1% of its purchase price in order for the owner to break even.

These are rule-of-thumb guidelines for your investment purchase in order for you to make a sustainable profit.  But they are mere guidelines.  There are many things to consider when buying an investment property.  For example. perhaps a potential house meets the 2% rule criteria, but it still is a high-risk investment due to its property quality, location, school district, tenant quality, or declining neighborhood.

There are so many factors that go into determining a good investment property and with our team's experience, knowledge, and expertise, you increase your chances of making a good financial decision.