Proactive ways to mitigate the '50% rule'

2 Replies

Hi BP Community:

Looking for proactive/preemptive ways to minimize the 50% rule to maximize your NOI on passive income properties. In previous podcasts, I've heard metering units, managing the property yourself, automated web-based rent collecting sites, etc. Just wanted to get some best-practices on one thread here and understand the cost/benefit for each.

Thanks,

Rich

@Rich Ramirez

I think the spirit of the 50% rule is one that suggests what can happen (likely) will happen. It forces investors to be a bit more disciplined about paying too much for a property. Look for deals and negotiate more. I would suggest it's a bit dangerous to say that "Good process and tools exempt me from a rule." This is in part because the really bad stuff will have nothing to do with you: Terrible tenants, natural disasters, CapEx surprises, etc.

All this being said, you should strive to do the best with your management and process, regardless. Here are a few that I think are innovative, and obviously depend on preference and market:

- Web based rent collection is a good easy win.
- Pet fees (@Brie Schmidt and others differentiate through renting to dog owners). These tenants stay a long time and pay a little extra for their pets. Maintenance is the obvious flip side to this.
- Renting additional parking spots (very popular in NYC).
- Depending on tenant class, self metering for additional services such as cable, internet, and even propane in the yard (grill season). Particularly A class tenants like these convenience type expenses.

Good luck, I am sure there are loads of other people with even better ideas.

Thanks Trevor. Much appreciated!

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