50 % Rule Help

4 Replies

Hi everyone Im pretty new to Investing I mean no experience, need help / advice...

In the 50 % rule, should I be including an estimated # for Tax's and Insurance? Or where would these expenses be subtracted from?

Hi Jose,

When analyzing a property you need to know what the gross monthly income it will provide. Then you apply the 50% rule to determine your monthly expenses.  The 50% rule says that overtime, on average, each month the income that comes in, 50% will go out the door in expenses, not counting the mortgage.

These expenses include repairs, TAXES, INSURANCE, maintenance, vacancy, landscape, etc.

So if your gross monthly income is $2000, you can assume that $1000 will be going towards the above expenses.

That leaves you with $1000 to pay the mortgage (including interest), and any amount remaining is yours to keep. So if the mortgage is $900 a month, you can expect to get $100 in cash flow.

When analyzing a rental property, I would shoot for at least $100-200 cash flow per month using the above information.

Remember the 50% rule is just a guideline, a rule of thumb, you should always sit down with a spreadsheet and go line by line to calculate the actual expenses for that property based on the history.

Hope that helps, see you around the forums!

Thank you very much Kyle Scholnick,

I will use that from now on to quickly analyze the any prospective investments...

Another question is how can I get a basic spreadsheet to start investing and one I could modify to my own...

I recommend making the sheet yourself. There are tons available online, but you'll never know how you're getting where you got without setting up the formulas yourself. For example, your question on 50% calculation. There are other "rules" that are used, and many other figures to go by to analyze a property. Once you understand the terms and how they are figured, making the spreadsheet is the easy part.

Thank you Bryan,

I know I eventually have to make my own spread sheet but I wanted a guide to start my own.?

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