Issue with 50% rule (guideline)

[Joshua A. Lenninger]

How's it going everyone? I have been doing some research and I've known about this 50% rule for a little while but never quite understood when applied to property. Every multi family property I use this screening method on always shows me upside down on cash flow which I don't see possible, but then again I don't have experience in owning property or being a landlord. I live in California and prices are high, but in turn rent is higher as well. So I will give example of property I am evaluating. Property A; Listed @ $360,000 Est. mortgage @ $1,800 Property tax @ $1,336 Monthly rent @ $3,250+ 50% rule applied 3,250/2= $1,625 $1,625-$1,800= in the whole Some info on the property Over an acre of land 2- 3/2 homes and 1- studio. 1 3/2 rented @ $1,350 and studio rented @ $700 as for the other 3/2 may be empty not sure. So is this just a situation where the rule doesn't apply? I don't see how the monthly expenses could be $1,625. Also could talk down listing price some I'm sure.

[Jay Hinrichs]

@Joshua A. Lenninger

  the rule works great at about 1200 dollar rent and under.. the rule does not go up exponentially as rents rise above that because fixed cost do not rise at the same rate as rent.

for me I would  try to run good numbers on actuals.

Generally on the higher value West coast properties PM is not necessary unless you just flat don't want to deal with it.

Like I Portland right now you put an add on Craig's list for a rental say at 1500 to 3000 a month for an SFR you will get 30 to 50 response's first day.. a blind squirrel can rent these places. And your tenant is going to be usually a younger busy professional. and payments of rents in this market is just not an issue.. Your not dealing with hud.. single mother 4 kids type of properties which are management intense and not generally recommended without PM

so cut that out of the equation.. then just look at  1 month vacancy... your actual expenses.

put in 2k a year for maintenance cap ex that should be sufficient and see where it shakes out  Tax's and insurance of course

so your 3250 rent my flush out like this

200  maintenance  capex

200 tax

100 insruacne

200 vacancy

1800  mortgage   =  2500 a month   add another 250 for contingency and your at 2750 or 500 a month positive and maybe your at 750.. with a west coast asset that should be much eaiser to handle than many others.. ( I say should) never a sure thing.