50 percent rule in my world

[John Soforic]

In reviewing past threads, I admit being sent into a mild panic over this 50% percent rule of thumb, despite the fact that I am experienced and currently own and operate 41 units... single family and duplexes with one 4-unit. I am an absolute number crunching geek, and while my truck may get messy my accounting is spotless and meticulous. So my point is I know my numbers, track every dime collected and spent on Quickbooks, impose the numbers onto another Excel graph, etc. You get the idea.

Am I correct in assuming we are dealing with a general rule of thumb that applies to the entire country, and as such it may be a broad generality with wide variability? I question whether it applies to Small Town, rural America. The facts are that in my area, taxes are lower, the cost of housing is lower (thus cost of insurance), and I do not hire property management. These local facts lower my overall percent of expenses which end up looking like this...

A common duplex rents for 550 each side (tenants pay utilities)

+13,200 gross rent

-1000 repairs per year (every five years = a $5000 bomb hits the property!)

- 2000 annual taxes

- 500 insurance

- $600 vacancy (5%)

= 9100 net profit before taxes and insurance

So in this example, which is accurate reality in my accounting world, my expenses are 31 percent- not close to 50%. Am I missing something? Or is it just that I can cash flow higher because I live in a rural area with no real appreciation? Even with 10% property management fees my operating expenses would be 41 percent... and I suspect more trouble on the rental side which may account for added expenses.

To be clear, I am not bashing the 50% rule. Why NOT estimate high on expenses?

I love conservative rules that keep me from hurting myself. Real estate to me is a chess game in which one needs to be on the lookout for trouble in all forms. I believe it is a valuable general rule of thumb to keep an investor safe; i.e., it provides a margin of safety. If I misunderstand the concept, please advise. Maybe it's property management that is costing others so much, and adding to the expenses? The purpose of thread is just to clarify it all.