50% Rule and Analysis

[Account Closed]

Hey everyone,

I am a new investor set to buy my first home. I have my team assembled, down payment ready, and am now looking for a deal. I'm mainly looking for 3 bed/1 bath houses around the $40-60k with little rehab needed. I will be investing in the Midwest.

My main problem is that when I run the numbers through the BP Buy-and-Hold calculator, my Cashflow number always comes up way short of what the 50% Rule would indicate. I know that the 50% Rule is just a guideline, but my numbers are pretty far off and I am well inside of the 1-2% Rule, so I feel they should be cashflowing more. 

I'm possibly being too conservative with the number(s) that I'm putting into the variable landlord expenses, but I feel as though I am being fair and cautious (I'm following Brandon's advice and setting aside about $200/month for CapEx), have a Vacancy Rate at around 5-7%, Repairs and Maintenance at 10%, and Management Fees at 10%.

My loan value is fair as well at 4.825% w/ 1 point on a 15-year note.

Perhaps that deal just hasn't come along yet, but any advice on how to run my numbers more accurately would be helpful!

Thanks,

Alex

[Thomas S.]

The 15 year note is what is likely killing your cash flow. Paying down principal on a rental is a mistake. If you can not get a 30 year on low priced homes you are going to be stuck with no cash flow.