"Operating Expenses" & the 50% rule

[Will Barnard]

There has been a ton of discussions and controversies regarding the 50% rule. In case you have been on the planet Jupiter the last few years, the 50% rule (a rule of thumb or quick analysis tool) states that "operating" expenses will average 50% of the gross market rents.

Perhaps it is just a pet peeve, but I want to clarify something here as to eliminate the current and any future confusions. The rule should state that "total" expenses will average 50%. Why, because vacancy, loss of rent, and capital expenses are NOT "operating" expenses.

Of course the rule states "operating" expenses for simplicity's sake, but as new investors become more seasoned (and I would like new investors to not come across incorrect in conversations with terms learned here) it is important to understand the differences between specific expenses.

That said, let me reiterate that the rule is talking about "total" expenses and not just "operating" expenses.

Will Barnard