The 50% Rule: How to Quickly Analyze a Multifamily Investment Property [Video]

2 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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YouTube
Instagram @beardybrandon
Open Door Capital

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As if I haven’t caused enough controversy this week (see my recent post Is it a Lie to Tell the Tenant I’m Not The Owner?) today I wanted to make a video explaining something that has caused a good deal of debate over the years here on BiggerPockets:

The 50% Rule.

In the following video, I explain what the 50% Rule is, and how you can use it to quickly estimate the cash flow you can receive from a buy and hold real estate investment.

The 50% Rule is:

 

Over time, 50% of your real estate investment’s income will be spent on expenses, not including the mortgage.

 

It’s just a simple way to determine cash flow – and something I use every single day, dozens of times.

Now, for those of you who are immediately up in arms about this “rule” – let me be the first to say it:

This is just a rule of thumb.

It’s use is not for deciding with 100% certainty if a property is going to be a worthwhile investment. For one thing, no one can ever know this 100% for sure. Secondly, I’m not going to take the time to analyze every single property that crosses my desk with my spreadsheet – like I did in my post How to Buy a Small MultiFamily Property: A Step by Step Case Study.

So the 50% rule is largely about speed and convenience, but it’s also about one more very important thing:

The 50% Rule is About Being Conservative

You see, when you normally run the numbers on a property (or when you get the pro forma numbers from a real estate agent) the expenses are FAR less than 50% of the property. However, most of these calculations don’t account for the “Oh crap, the furnace just went out” or the “Oh crap – the tenant is late again and now I have to evict.” So even if the 50% rule is “too conservative” – in my book, that’s just fine with me.

When I do an investment analysis, I always look at three expense figures:

  • The historical expenses – what the expenses actually were
  • My opinion of the expenses – my spreadsheet of what I expect the expenses to be once I buy
  • The 50% rule – well… just watch the video below.

Then, I simply look at the highest number and use that in my calculations, being the most conservative in my estimates as possible by being the most liberal with my expense assumptions.

I’d rather miss out on a few deals for being too conservative than buy some deals that sucks more money out of my wallet than a Tall 180 Degree Non Fat Peppermint Hot Chocolate with Whip and 1 Pump Vanilla from Starbucks.

Mmmmmm.

So why you are all watching the following 4 minute video, I’m going to head to Starbucks and get my little drink from heaven. Don’t judge me or my goofy look in the video photo below! 😉

Thoughts? Leave your questions and comments below!

I always respond! (try me!)