Analysis shows positive monthly cash flow but a negative 50% rule

[Will Stewart]

Can someone explain this like I am 5? So in the analysis of this property, it shows a positive cash flow of around $300 a month. However, when I look at the 50% rule at the bottom of the analysis it shows a negative cash flow of around $105. This has me confused and I have watched the explanation of the 50% rule several times. What am I missing? Thanks as always!

[Joe Villeneuve]

Quote from @Josef Hardi:

Hi Will, 

I'll give it a shot. The positive cash flow of around $300 is great! 

You are getting that number this basic formula:

INCOME - EXPENSES (monthly mortgage + other expense) = Cash Flow of $300. 

*** Note that under expenses it combined monthly mortgage and other expenses.

However, the 50% rule does not use the same formula. Instead it uses:

(INCOME/2) - EXPENSES (ONLY monthly mortgage) = Negative cash flow of $105.

*** Note that on the 50% formula, your rental income is cut into half. But also note that ONLY your monthly mortgage is deducted for expenses. 

Remember that this is just a rule of thumb. Positive cash flow is great, just make sure you take into consideration other expenses ( vacancy, capex, maintenance, property management fees, etc). Otherwise, if you don't have those other info, then you should go with the 50% rule.

Hope that helps!! 

...and is useless.  Another example of percentages that lie.  Percentages are a means to an end,...the end being dollars.  NEVER make a decision based on a percentage...unless you plan on spending percentages.