BiggerPockets

-Rich

The 50% Rule is not defunct in South Dakota or anyplace else. The 50% Rule simply says that throughout the United States the operating expenses run 45% to 50% of the gross rents.

You can certainly pay $100,000 for a property that rents for $550 if you want to. Just realize that your going to be losing a lot of money!

I also agree with Rich. Finding deals that will cash flow is not easy in ANY market. In my area of Ohio, the vast majority of rentals sell with gross monthly rents at 1% of the purchase price. Of course, that's exactly why the vast majority of newbies fail in a short period of time.

Mike

My reply was totally serious. I've moved three times with my day job. From MO where I grew up to Houston. Then to Bakersfield. Now to Denver. Its not at all uncommon to move either because your company wants you to or because you're offered a better job somewhere else. Why is this such a foreign concept for real estate investing? If you're living in a place where there are no deals, and you really want to make a living with RE, move somewhere where you can find deals.

""Look into your local tax sales and you may find some homes cheap enough to suit you. ""

Funny story . I have already went to the court house to look into tax deed sales and they said they havent have had one sell in over twenty years. Sounds strange to me.

The 50% rule is NOT defunct in SD. I live in Portland, OR and I have one rental, soon to be acquiring more in Rapid City because it's MUCH easier to get cash flow there than in Oregon! The duplex I have was purchased for $100K and rents for $1270 (was renting for $1150 when I bought it 2.5 years ago). I think you should look into multi-family and possibly look in Rapid City if Sturgis isn't working out for you. It's only half an hour away.

Btw, I have a lot of in-laws in Sturgis.

I think there is a HUGE difference between meeting the 2% rule and getting the rent to cover you PITI payments. For example, with the duplex I mentioned in SD, my PITI is $620/month. The rent is $1270/month, so I have $650 left over for maintenance, repairs, vacancy, replacements reserves, and profit. In addition, I'm paying down my mortgage principle. To me this is an outstanding deal; I'd love to have 5 more like it. However, it doesn't come close to meeting the 2% rule because I paid $100K for the property; it would have to rent for $2K per month! If I were to buy something that just covers my PITI payment, this property would only have to rent for $620, but I would be losing tons of money on the repairs and when the property is vacant. So now I'm confused with the huge discrepancy in the advice being given.

Personally, I like to use the 1% rule: The rent minus owner-paid utilities should be at least 1% of the fixed-up cost of purchasing the property. That seems to give me a good enough margin, but then again I've only been doing this for 2.5 years, so maybe I'm just not experienced enough to know what all can go wrong. I'm also not relying on the rent to make ends meet, but I do only want to purchase properties that will "pay for themselves" and at least break even under the worst-case assumptions.

That makes a lot of sense. Maybe I need to start looking in Indiana! Got any to sell me? I'll settle for 2.5%. :-)

I'm amazed at the difference in "investing" strategies I see. I have friends who buy where the rent they think they can get = the PITI payment and they think it's so cool that "the tenants pay the mortgage" without thinking about how much they lose on vacancies and repairs. They think I'm hard-core (and unrealistic) when I refuse to buy something that doesn't meet the 1% rule. Then I come to this board and see there are people getting 3%. It's been very educational.

"Move."

Classic 4 letter post. Jon, you are a really good writer, and you also can be succinct!

Travis, check out BP poster Rich Weese, who moves around following his favorite markets. He just moved from S TX to Ft Myers.

3 things for Travis.
1. It is not the 50% rule that is in question but the ability to find a property at a rent to price ratio that will be profitable.
2. As already stated, look for properties outside of your area. I am fortunate to live in an area where the rent to price ratios make owning rentals a profitable business.
3. I don't manage my own properties. Before I looked at a single property, I interviewed property managers first. I would recommend that you find an area where price to rent ratio's are favorable and then develop a support team starting with a good property manager.

Good luck.

Chris