12 Unit - 50% rule

[Bryan Miller]

Hello BP,

I'm an experienced investor in SFH/condos and I'm considering purchasing my first 12 unit in New Mexico. I have it under contract for 183K. It is actually (3) 4 plexes on 1 lot. It is in a mixed area, some expensive single family and some older lower income homes and multifamily.

Overall safe, good area, just lower income. Mix of 2 bed, 1 bedroom and efficiencies. Total gross rents are $4,533 monthly.

No HOA, Property Tax is $2,100, Management Needed. (I currently own out of state property).

I'm sure there are repairs to do, just not sure how extensive. It is partially rented now.

If I apply the 50% rule, then monthly rent is reduced to $2,266. Mortgage on $136k would be approximately $1,082 if I get a 15 year fixed at 5%, not sure I can get these terms. I'm shopping currently for a commercial loan.

So if I deduct my mortgage of $1082 from 50% of gross rents, is it safe to plan for an average of $1,184 positive cash-flow monthly?

That's $14,214 annual. My out of pocket would be $45k (25% down) plus repairs. So cash on cash looks pretty healthy.

Am I applying the 50% rule correctly?