The 50% Rule

[Benjamin Eccles]

I need some experienced investors to way in on this. How accurate is the 50% rule? I do not own any properties and I never have so I truly have no idea how much it costs to be a homeowner (including all of the expenses besides the mortgage). I completely understand that this rule of thumb isn't to be used as the deciding factor on whether or not you should invest in a property but I do want to know what other peoples experience has been and if 50% is a reliable assumption. 

Does anyone find it helpful to just put away 50% of the gross rental income you receive into a separate bank account and only touch it for upkeep and expenses? Or is it more of a mental reminder that you shouldn't spend all of your left over cash after paying the mortgage?

Thanks for any advice, opinion, or story!

- Ben

[Thomas S.]

The accuracy is more dependant on the type of property and has nothing, or very little, to do with the value.

A SFH will generally, over the life time of the property cost 50% of the rental income to maintain the property. The most important factor being the statement ..... over the life time of the property. A brand new home rented for one year may have expenses as low as 20% but that number has no bearing on long term expenses which is what the 50% rule applies to. At the same time a bad tenant can drive your one year expenses well beyond 100%. Again no bearing on long term expenses.

A multi will be lower, maybe only 40%, due to the fact that many of the costs are spread over multiple tenants as opposed to only one, such as vacancy, roof, taxes etc.

Expenses yesterday or today mean absolutely nothing in calculating or estimating expenses 10 or 20 years into the future.