Question regarding SFH Rental in Michigan (50% Rule)

[Erik R.]

Hello all,

Let me preface this post with- I am still new and looking for my best SFH rental entry point (so please.. go easy..) In doing research and crunching #s, I'm struggling with getting anything to cashflow with using conventional financing, especially when using the 50% rule for expense estimating.

As example, the following property is listed for $75K in my area: http://www.moveinmichigan.com/MIMPubliclogon.aspx?...

If I buy this property at $75K, put 20% down with a conventional 30 yr, and achieve $1k/mo in rent (which is what comps for this type of property)... the following #s is what I see at a high level:

- Principal & Interest: $293/mo

-Tax : $150/mo

-Insurance (est): $50/mo

Total PITI: $493

Est Expenses (50% Rule): $500

-----------------------------------------

Total Expense + PITI = $993/mo

Income ($1k rent w/ 9% Vacancy Loss): $910/mo

Cashflow in this scenario is negative.. with 1.3%  rent/price ratio.

Even with a sales price of something like $55K (1.8% rent/price ratio), this doesn't cash flow.

Now with the same above scenario, using est 30% expense assumption cashflows $180/mo.

Am I being too conservative on expenses for a ~1,200 sq ft. brick bungalow ? I'm not seeing how traditional financing, while using the 50% rule for est expenses, is going to cashflow at all with properties under $150K. 

I realize the 50% rule is just a gross figure to use to quickly evaluate a deal, but if I were to use this on anything it would seem to always showstop any property.