50 % Rule Help

[Jose Tamayo Jr]

Hi everyone Im pretty new to Investing I mean no experience, need help / advice...

In the 50 % rule, should I be including an estimated # for Tax's and Insurance? Or where would these expenses be subtracted from?

[Kyle Scholnick]

Hi Jose,

When analyzing a property you need to know what the gross monthly income it will provide. Then you apply the 50% rule to determine your monthly expenses.  The 50% rule says that overtime, on average, each month the income that comes in, 50% will go out the door in expenses, not counting the mortgage.

These expenses include repairs, TAXES, INSURANCE, maintenance, vacancy, landscape, etc.

So if your gross monthly income is $2000, you can assume that $1000 will be going towards the above expenses.

That leaves you with $1000 to pay the mortgage (including interest), and any amount remaining is yours to keep. So if the mortgage is $900 a month, you can expect to get $100 in cash flow.

When analyzing a rental property, I would shoot for at least $100-200 cash flow per month using the above information.

Remember the 50% rule is just a guideline, a rule of thumb, you should always sit down with a spreadsheet and go line by line to calculate the actual expenses for that property based on the history.

Hope that helps, see you around the forums!