50% rule for condos?

[Gary Dezoysa]

Hi,

Does the 50% rule (half of gross rents are the net) apply to condos as well?

Thanks

[Russell Brazil]

The 50% rule doesnt even apply to all single family homes.  It generally applied to low priced properties. As the price of  property increases, then a smaller percent of the rent will go towards things like capital expenditures and repairs.   Let's look at an easy example to understand this. Take a $50,000 property somewhere in say the midwest. The cost of replacing the HVAC on that property may be $4-5,000.  Take a $450,000 single family home on the coast in a high cost area of living...the HVAC may be $5,000. So in the cheaper house the HVAC will cost almost 10% of the value of the whole property, while in the high cost area it may be closer to 1%.  

Now as a general rule in condos, the percent that goes to repairs and capital expenditures should be smaller than a single family home, but price point of the condo is just as big of a consideration.