Applying the 50% rule to determine value

[Jeffrey Gordon]

2% - 50% rule Question

Hi folks, I have heard this rule this week for the first time (THANKS) and have been reading all the forum posts I can find about how it is used to screen etc. Will bevery helpful in convincing my son what the true operating expense range actually is for rental properties.

I am modifying some excel models I also picked up here this week and converting to my own version of decision making tools.

I am not clear on when you back into the "value" by taking 50% of Scheduled Rental Income as Net Operating Income do you assume you are going 100% loan proceeds with no equity? Or are you using some other model to get to the value.

illustration:

Duplex

Scheduled mo.Rental Inc $2,000

Less Vacancy 5% 100

Less: Other Op. Exp. 900

Net Income 1,000

Less: Profit per door/mo 200

Available for P&I 800

Rate 6% 30 yr Term

"backed in loan amount" $133,433

If you were putting some cash in the deal you would add it to the $133,433 to get to the purchase price, or you would only offer
them the amount the loan is?

thanks

jeffrey