Is the 2% rule outdated?

Yes, for many mainstream real estate markets, including most of Lane County, the 2% rule is widely considered outdated as a realistic expectation for consistent rental income.

• Market Shifts: The rule originated in a different market environment. Post-pandemic, property values have surged in many areas, while rental income, though also rising, hasn’t kept pace proportionally to maintain a 2% ratio in most desirable locations.
• Affordability Crunch: Achieving a 2% ratio often means prices would have to be significantly lower or rents significantly higher than current market norms in stable areas.

Focus on Cash Flow vs. Appreciation: While the 2% rule focuses solely on gross rent, successful long-term investors often balance the potential for cash flow with the potential for property appreciation and tax benefits. In appreciating markets, a lower cash-on-cash return might still yield excellent overall returns due to equity growth. While it can still serve as a very quick “back-of-the-napkin” filter, investors looking for properties in markets like Lane County typically aim for a more realistic 0.7% to 1.5% rule, understanding that a comprehensive financial analysis, factoring in all expenses and market conditions, is always necessary.