Capitol improvement effect on 50%

[Ed L.]

I've been thinking over the 50% guideline and have spotted a hole in the analysis.

Say for example there is a house for 50k. House rents for $800 x 50%=400. P&i $300 and $100 cash flow. Good deal right?

Now lwts assume The house is 20 years old and all the mechanical systems are nearing the end of their service life. They still are doing the job but their time is short.

Just for math simplicity sake lets assume that the house needs $15,000 in Capitol improvements. New rood, AC, hot water heater, etc.

I'm just trying to wrap my mind around the impact these Capitol improvements affect the deal analysis.

Once they are performed there would have a negative cash flow for that year. But from that point forward maintenance cost would go down for the next 20 years.