50% rule

[Michael Baradell]

Hey guys!! Rookie question here. Can someone give me a breakdown of the 50% rule using this example? I have already calculated it myself, I just want to be sure I am doing it correctly.

Purchase price- $75k

Rehab cost- $10- 15k.

Taxes and insurance- $300 month

Minimum potential rent- $1100-$1300

Other info:

New roof, new a/c, ARV $125k - $130k

Any insight on the 50% rule or 2% rule will be appreciated.

[Michael Baradell]

Thanks for all of the responses guys!! It really helps to see different perspectives.

I do have an update on this deal that I figured I would share. This particular deal started out as a fix and flip, however my backup plan was to fix and hold. I ended up listing the property and this was the outcome.

On the market for 33 days. In that time I had 14 showings and countless Internet and phone leads. Just yesterday I received two offers. The first was about 9k off asking price including closing costs. The other however, was for full asking price with no contingencies or seller assist.

Here's the breakdown of the entire process:

Purchase price- $85k plus seller paid $3k for closing

Initial plan- $15- $18k rehab costs, 4 week time frame

What really happened (haha)- total rehab and carrying cost up to this point

$28k!! Time frame- 9 weeks.

Selling price $143,900

All in for about $115k

When all the dust clears there will be a profit of around $24k before taxes. Of course there are still inspection so hopefully all goes well.

Overall, I would call it a success for my first flip. I have learned a ton, paid way too much to my contractor and mismanaged the project terribly, but it looks like I will survive!! BP has played a huge role in this process and I'm very thankful for that. On to the next!!