50% Rule for Single Family Homes?

3 Replies

This is my first post.

I have been doing a lot of reading over the last several months and am trying to decide what niche I want to become part of.  Here is my question:

Does the 50% rule apply to single family homes?  If so, how are they a good investment at all?  In a decent neighborhood in San Antonio, there is no way I would find a home that met that requirement.  In my head, I feel like single family homes would require less maintenance and effort.  Am I missing something?

Thanks

JP

It depends on the property and what your strategy is.

If you plan on holding it as a life long rental, then yes, you probably need to use the 50% rule.  

If you're buying a home and planning on fixing it up, renting it out for a few years, then selling it and pulling the forced equity out, then you probably don't need to budget as much for capex. You most likely made most of those improvements when you originally rehabbed it and will get rid of it before those cap expenses start coming into play.

The rules are great guidelines, but apply them to whatever your playbook is.  Although you can lower capex based on what your strategy is, don't eliminate it!

@JP Ivey

Welcome to BP!!

The 50% guideline is just that.  It allows you to look at something, do quick math and figure out if you want to call the listing agent for some actual numbers.  If you think it is a property worth looking at, dispose of the 50% and get the actual numbers.

SFH rentals have the distinct advantage of not having to pay Sewer and Water. At least not all that frequently. The Cap Ex costs are derived from the number of systems and physical items that will require maintenance over the years. A 2500 SQ foot MFH with 3 bathrooms, 3 kitchens and a single furnace will cost roughly the same amount as a 2500 Sq foot SFH with 4 bathrooms, 1 kitchen, 1 utility sink and a single furnace.

However a quadplex with 4 furnaces, 8 bathrooms, 4 kitchens... you get my point.  Cap Ex should be a minimum of $150/month in my opinion.

Hey @JP Ivey

Welcome to BP and congratulations on your first post!  Here are few tips for you to get the most of BP and narrow down your investing strategy:

Start here. You'll get a wealth of REI knowledge and learn how to take full advantage of Bigger Pockets (including how to connect with other San Antonio investors).

Listen to the podcasts , get active on the forums & set up key word alerts to be notified when people are discussing topics you're interested in. 

Now to your question:

@Aaron Montague makes some great points.  The 50% rule, just like the 2% rule, are just quick methods to find out if a deal is even worth pursuing.  There will be many variables depending on the property type, age, area, tenant quality and as @Tim Macy points out, your plan for the property.

Single family homes can be a great investment.  There's appreciation potential, longer term tenants and higher rents compared to apartments.  They may require less maintenance in terms of management, i.e. getting a quality, long-term tenant.  But in terms of actual property maintenance, if you've ever owned a home you know that they require plenty of maintenance.

Hope that's helpful!

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