50% Rule - Confused on its application.

[Brandon Russell]

Working on the analysis for my first property and as I'm looking for BRRRR deals I'm finding trouble find anything that meets the 50% rule. I know interest rates have made it more difficult right now but I'm curious about the actual application of the rule even in a better climate.

I know it's not a hard and fast thing but I see folks like Thach Nguyen and Brandon Turner constantly talking about how they won't even look at a property if it doesn't meet that rule. I'm able to find deals that provide cash flow after PITI is paid but taking into account expenses I'm not sure how that's possible.

Say a property the PITI is $1000. Following the 50 percent rule does that mean i'd need to rent out at least $1500, correct? When people say it's cash flowing "$300 over" is that after the $500 needed for the 50 percent rule bringing the total rent to $1800? This is what has me confused.

Any insight would be appreciated.

[Andrew Postell]

@Brandon Russell you've got some good comments above but let me share a different perspective if you don't mind:

1. Are you a full time investor that doesn't flip? - Meaning, do you need that cashflow to survive? If you do....then your choices are really narrow. You are forced to take a lower loan amount to have that income since you don't have income from flipping. If you do flip, that's how we really make money as a full time investor. Clearing $50,000 on a flip would take us over 17 YEARS to make at $250 per month of cashflow. We keep properties for the appreciation and tax deductions mainly.

2. Andrew, everything I read is about making cash flow so I don't have to work - Yes, I read those same books, listen to those same podcasts, etc. Sounds really nice, right? "Quit your day job and sit back and collect mailbox money". I mean, that's how they position it, right? So if there's no cash flow....can they sell books? Would you buy their "guru course"? The reason why I bring this up is we used to NEVER talk about cashflow back in the day. That's a recent thing - and cash flow is spun in a way that's....well, "different" let's say.

3. Long Term - you will cash flow eventually on a property that you acquire right now. But this would mean you would not make any money on it right now. That's how it might be for a while now. Maybe a few years even. I'm not saying you should not buy properties...but we need to think about real estate REALISTICALLY. This is not a get-rich-quick scheme. It never was...even though some people sell it that way.

Read this article HERE that Brandon Turner wrote about making $100k on properties (without cashflow) and see how you feel.  Many of us have been following this technique for a while now.  It works very well.