The 2% rule is the 1% rule on steroids. Monthly rent must equal at least 2% of purchase price. A $60,000 property would need to rent for $1,200 a month. These deals exist, but they are almost always in lower income neighborhoods with higher maintenance, higher vacancy, higher turnover, and more tenant management issues. The cash flow looks amazing on paper and the reality is usually less amazing after you factor in real operating expenses. Section 8 in Birmingham, Cleveland, Memphis, and Indianapolis can hit 2% in the right neighborhoods because Fair Market Rents are strong relative to purchase prices. Experienced operators with good property managers can make these work. Newer investors chasing 2% deals in unfamiliar markets usually get burned. The rule is worth knowing as a benchmark but treat it with caution. A 2% property with a 60% operating expense ratio cash flows worse than a 1% property with a 35% operating expense ratio.
Example
A property costs $55,000 and rents for $1,150 to a Section 8 tenant. Rent / price = 1,150 / 55,000 = 2.09%. Passes the 2% rule.