50% rule on SFH

[Steve T.]

Hi all,

Looking into purchasing an investment property. In my home market, I can get into a little 2 BR SFH for about 60-70k that should rent for $650-700 or so per month.

Here's what I don't get. Using the 50% rule, there is $350 left over every month for P&I and cash flow. P&I at 5% and 30 years on 65k is $350. There's just nothing left over for cash flow.

So, bottom line, I guess these are bad deals? Some of them really aren't in bad shape or in bad neighborhoods. What I really don't get is this - a lot of these houses are selling for 50-60% of what they sold for 2 or three years ago. It seems crazy to me that prices could have fallen that much and still not present a real opportunity for investors, but I guess not?

A related question. When I run the numbers on properties, the ones that seem to fit from a cash flow perspective are always beaters in bad neighborhoods. Am I better off just accepting that to get some cash flow I need to be a slum lord?

As a final note - I have a pretty good day job and I will absolutely use property management if I decide to do this.

With all that, any thoughts/advice?

Thanks,
Steve