Nothing seems to pass the 50% rule

[Jose Alejandro Hernandez]

Just starting out here and been reading Brandon Turner’s book on Rental Property Investing.  The book gives a rule to use to quickly screen properties known as the 50% rule [(0.5*projected income/rent)- (Mortgage P and I)] to determine projected cash flow. I have been looking through properties in El Paso, Tx and even other areas on Zillow and applying this rule. Everything seems to come out negative! 

I have been calculating using Zillow estimates. Are these estimates good projections? Any tips to find better deals for a beginner? 

[Randall Alan]

@Jose Alejandro Hernandez

One sort of hidden feature of Zillow I do like is that you can go to the map within a listing, click on the "Lot Lines" tab, and see all the houses around your target house you are looking at that have sold recently, or are for sale.  You have to greatly temper all that by date sold... but it is a convenient feature to start evaluating pricing on a broad scale for the area.

As for the 50% rule...  You can pretty much throw out all the percent rules since about mid 2022... at least until interest rates drop back down to the 4-5% range.  Pretty much none of them are going to work.  Mostly because the Fed wants investors on the sidelines so they aren't eating up housing supply.  The goal is to drive housing prices down.  But most sellers are handcuffed by the low rate they currently have on their property and don't want to buy back into a high rate environment, so are staying put.  So the Fed's attempt to increase supply is somewhat hamstrung because the regular flow of new inventory from sellers isn't hitting the market like it did when rates were lower.  This leaves only new home listings to try and help drive up supply beyond the reduced rate of people listing their owned properties... which is a slow process.  All of this translates to: Now is a tough time to try to buy into the real estate market.  But real estate is cyclic.  The deals will eventually return.

All the best!

Randy