Cash flow but not meeting 50% rule?

[Paul Quinn]

Hi All!

As my learning continues I have made it a habit to run numbers on houses just to get the practice. What I have run into a number of times is the potential rentals having a positive cash flow but not meeting the 50% rule. 

Is this a big deal? If its positive cash flow but not meeting that rule is it still worth buying? 

If not what should I look for or try and avoid? 

I'm having a hard time understanding this. Any and all information would be much appreciated! 

Thanks!

paul

[Bob Okenwa]

@Paul Quinn

The 50 percent rule states that the expenses on a rental property will be 50 percent of the rents. Not sure if you have that mistaken with something else or not. And these "rules" are only rules of thumb. The 1% or 2% rule states that the gross monthly rent should be at least 1 or 2 percent of the purchase price. This is not achievable in every market and therefore sticking to this rule would eliminate many markets altogether.

Run the numbers, make sure it cash flows, then run the numbers again to make sure you haven't forgotten anything and have accounted for the hiccups that are sure to occur.