50% rule and utilities

1 Reply

Can someone please tell me do utilities go in 50%?

Example if someone is renting duplex for 800 inclusive each unit, so do I count my monthly cash flow 1600/2 minus mortgage or do you count after you pay utilities. 

Lets say utilities are 200 per month so it is 1200/2 minus mortgage

Thanks

Hi Igor,

It depends. Generally speaking, for single family homes where the tenant is paying utilities, you wouldn't include it. For multi-family units, where you as the landlord are paying for some or all of the utilities, you would of course include them as part of your expenses.

Keep in mind that the 50% rule is just a rough guide meant to be done on the back of a napkin. Every investor uses it differently, and it's not a substitute for a complete budget based on the particulars of your area and the individual property. I don't own any multi-family, but from what I've heard from other investors, small multi-families can be more like 60% for expenses rather than 50%.

In your example, if we use the 50% rule, we know that the combined monthly rental income for the duplex is $1,600. Therefore, you can assume roughly $800 a month will go toward expenses (property taxes, insurance, maintenance, capital expenditures, vacancy, utilities, etc.). Take the remaining $800 and subtract your estimated monthly mortgage payment (principal and interest). Whatever is left over after all of that is your combined monthly cashflow. Divide that by two and you get your cash flow per door. I personally want a minimum of $100 per door per month, preferably more.

Best of luck!

Chad

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