Vacancy and Cap Ex Included in 50% Rule?

2 Replies

When using the 50% rule, does that include vacancy and capital expenditures? Also what is a good way to accurately calculate expenses on a small multi-family. If it's managed by a company, will they have most of that info? If it's managed by an individual, what is the best place to get that information rather than the pro forma? Thanks in advance to anyone who replies!

@Joseph Ziolkowski , yes, vacancy and cap ex are included, as well as maintenance, property management and property tax and insurance (but not Principal and Interest cost).

Nobody can know for sure what its expenses will be in future, hence the ballpark "50% Rule", which can be fairly close in the case of middle-priced, middle-aged, middle-neighborhood type properties. With proper research, you get to know why properties outside that middling category might fall over or under the 50% Rule.

Yes, I know, that's why you're here. [But, you shouldn't be looking for a pro forma answer!]...

When we analyze a deal we apply the vacancy to the gross potential rent then apply the 50% rule. Also we tend to see the expenses a bit higher that 50% on smaller deals. Not that said each one can be a little different, but it seems that PM fees are a little higher and without onsite maintenance those cost will end up a bit higher. As for getting the info best to ask for past 2 years of P&L’s along with the T12 and current rent roll. If they have a good PM in place this will be pretty easy to get. If it’s self managed you may have to dig through the numbers a little to find good actuals. We seldom find the Pro forma to be a real accurate picture. Hope this helps. By the way my brother and family lives in Wausau. The town seems to have a lot going on especially in the downtown area. Happy investing!