Why the 50% rule is so important....

[Heather C.]

I know a lot of people come on here seeking advice about rental deals they have and many of them don't hold up to the 50% rule. I will admit I guilty of justifying the deal in my head even when it didn't make true sense on paper. Luckily I had (and still have) a great mentor that snapped me out of that. There were times I felt like she was being unfair to the deal because the property was beautiful or in a good location, etc.
This past April one of my rentals, a duplex, caught fire. Thankfully no one was hurt. The tenant's dryer had a faulty part which ignited lint in the dryer. Combine that with the fact that the duplex was wood frame from 1920s and pesto chango you have one hell of fire starter.
I have been out of 2 rentals incomes on this property. First waiting for the insurance money (in FL they have 120 days and of course they took every last day) and now waiting on the renovations. Yes I received some of the lost income in the insurance payment; BUT I still had to float several months before that came through.
Reserves are so very important. If I hadn't used the 50% rule and funded my reserves, this could have been catastrophic for me financially. Luckily its not and while I do cringe every time I check on it, I'm not losing my butt on this deal.
I urge everyone looking into deals to buy with the head and not the heart. Its easy to get caught up in the excitement of buying something; but the money is made in being smart financially...not because the unit looked pretty.