50% Rule

[Simon Wold]

Hey All-

Im just starting to run through and analyze deals on the MLS. Entering in all of the pro forma data for every multifamily property would take forever, so I am going to implement the 50% rule in order to weed out the good from the bad. Thoughts on this strategy? Does anyone use another strategy or rule to quickly run through deals?

Also, I am not sure if I am implementing the 50% rule correctly.  Here is a link to one property I looked at: https://www.redfin.com/WA/Tacoma/3276-92nd-St-S-98499/home/2825569

So monthly income is $6,700. This leaves $3,350 / month after half of the income has been spend on expenses. Using the Mortgage Payment Calculator from BP, putting 20% down at a 4% interest rate gives a PITI payment of $3,917.74 / month. The question I have is, does the insurance and property tax get calculated in as part of the 50% expense? If so, I am including these numbers twice...

Best Regards,

Hans Wold

[Tim Ryan]

Correct. If you have PITI the TI is in the monthly debt service payment. Now depends on how many units the property is and these numbers change. But, somewhere between 40% to 50% in expenses (included taxes and insurance) is correct for most mutlifamily. This deal looks like either a no cash flow deal or possibly a negative (because I don't think you will get 4% loan on an investment property). So, learning about analyzing and asking the question is good. This as a deal, not good to me.