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General Landlording & Rental Properties

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Josh Michel
  • Cherry Hill, NJ
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When is the 50% rule inaccurate?

Josh Michel
  • Cherry Hill, NJ
Posted May 13 2015, 09:18

I realize the 50% rule is supposed to be a "rule of thumb" that helps you weed out potential properties before more fully analyzing properties that pass it.  My question is, when is the 50% rule fail?

For example, if I'm interested in purchasing a multi-family property built within the past 3 years, do I alter the rule at all.  I know that long term the 50% rule applies, but CapX costs shouldn't be a factor for a decade or more.  At what rate do you factor these in.  Of course you want to be accounting for these expenditures down the road, but it seems that any income generated is better used to fund more property purchases than to get socked away waiting for the eventual wear and tear of the property that likely won't happen for years to come.

In short, when does the 50% rule fail for properties that are still good deals, if ever?

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