Is the 50% Rule a reasonable rental forecasting measure in West Allis/Milwaukee with high RE Taxes?

[Kurt Moeller]

After re-reviewing past income statements and doing my budget forecasting for the year I was thrilled to see I hit 38% expenses against my 2014 Gross Income on one of my rentals. But after some research on getting a better handle on expense forecasting, I realized I was not counting PM costs since I manage it and I was setting aside the cash but not specifically saving it into a side account for future Capex.

If I am being conservative for an area 2015 estimate, I have following for a east side West Allis SFH 3/1 1200+ rental:

Gross Income: $1095/mo rent, 4.2% Vacancy Loss (1 out of 24 months) = $12,593/year

Expenses: $3,200 Tax, $560 Insur, 5% Opex ($600), 10%Capex($1200), 10% PM ($1259), $175/quarter Water Bill ($700), and Admin/Advertise ($75) = $7,595/year

Net Income: $6,398/year and this puts the Expenses as a % of Gross Income at 61.4%

Now this rent seems to be in the middle range, maybe could be a little bit higher. Also, maybe the tenant could pay part of the Water bill. But I could also analyze the Opex/Capex further and potentially move it up a bit also. If Property Taxes was half this amount like in other states, it hits the ~50% range.

How do other property investors in Milwaukee County analyze this 50% rule and what do they realistically think they can get per year (or annually over a 5 year run)?

[Sam K.]

For whatever is worth right around 60 % is what I come up with for my duplexes in West Allis and Milwaukee... Taxes are a big contributor to that and age of buildings causes higher maintenance as well. 60-65 % is normal including property management. If you had a bang up year great ! Put some away for the expense around the corner :)