50% Rule for Analyzing

11 Replies

The NOI has nothing to do with the 50% rule. The 50% rule is a wild a$$ guess when you don't want to put any effort out to get the actual numbers. The NOI provided on the site is the actual NOI based on the actual income and expenses which is almost always provided in the pdf info packages provided on the site.

Forget the 50% rule.  It's for the lazy.

I never go by the numbers in a listing they are just Pro Forma which is Latin for "I am making this up". If I am interested in a property I plug in my own numbers and then do the calculations.

The 50% “rule” is as bad as the 1% rule or the 2% rule. 

Any rule that doesn't factor in if the property is 1 year old or 100 years old, has no HOA or a $1200/mo Hoa, has Texas or California levels or property tax versus Nevada levels, doesn't even account for if there's a state income tax. Is not a rule to follow.

Start with the known numbers, rent, property tax, insurance, HOA if any, etc. Then calculate the rest from experience or fellow landlords of the same type of property in the same neighborhood of the same age.

There’s almost no work in checking. And their numbers better be right. 

Rent minus tax and insurance if it's SFR. Otherwise add landlord utilities for MFR.

they should give you a 1 paragraph piece fo paper that shows this. So you can confirm with your insurance agent and the county taxing authority that those numbers are right. Then you get the estoppel that you have the tenants sign saying lease term, rent, security deposit, etc. You also ask if there are any outstanding problems/repairs and what they think is the worst part about the place they’re renting. 

If you’re going to use a PM so them what they think they could get in rent “quickly” (less than a week) and eventually (2-3 weeks). If the numbers are close you use the quickly rent. Hopefully that number is higher than the current numbers. Rents are up 10-30% in some areas over the last year. So if tennats have been there a year it might perform better for you than the current owners. 

Originally posted by @James LaFarr :

@Joe Villeneuve Do you not worry that they fudged some of the numbers? Or aren’t counting some of the things that you would count under expenses? EX. Not counting maintenance under expenses 

 What you just told me says they won't because you will be on the lookout for that...just like any other investor.  Besides, you think guessing at all of the numbers will somehow be more accurate?  See what @Bill Brandt said above.

The 1% rule and 50% rule are not hard-and-fast rules to be used in a purchase decision. These are "rules of thumb" evaluations, meaning they are designed to quickly evaluate a property and determine if they are worth looking deeper or if you should move on to something else. 

Instead of wasting your time doing a deep evaluation on 30 homes, you apply the 1% rule and within 30 minutes you can know which homes may be worth looking into deeper. It's a process of elimination.

Think of it this way. You have 30 guys standing in front of you and you need five of them to form a basketball team. Do you spend time questioning their basketball knowledge and running them through various drills, or do you perform a visual analysis and quickly eliminate the ones that are overweight, missing limbs, wearing work boots, etc.? 

Use a rule-of-thumb to narrow down the field to the most likely contenders. Then analyze in detail before making a decision.

Originally posted by @Nathan G. :

The 1% rule and 50% rule are not hard-and-fast rules to be used in a purchase decision. These are "rules of thumb" evaluations, meaning they are designed to quickly evaluate a property and determine if they are worth looking deeper or if you should move on to something else. 

Instead of wasting your time doing a deep evaluation on 30 homes, you apply the 1% rule and within 30 minutes you can know which homes may be worth looking into deeper. It's a process of elimination.

Think of it this way. You have 30 guys standing in front of you and you need five of them to form a basketball team. Do you spend time questioning their basketball knowledge and running them through various drills, or do you perform a visual analysis and quickly eliminate the ones that are overweight, missing limbs, wearing work boots, etc.? 

Use a rule-of-thumb to narrow down the field to the most likely contenders. Then analyze in detail before making a decision.

 Actually, you should be able to do a full analysis on every home within a specific area (size of area doesn't matter), in that same 30 minutes.

Originally posted by @Joe Villeneuve :
 Actually, you should be able to do a full analysis on every home within a specific area (size of area doesn't matter), in that same 30 minutes.

If you can fully analyze 30 homes in 30 minutes, you're a rock star.

 

Originally posted by @Nathan G. :
Originally posted by @Joe Villeneuve:
 Actually, you should be able to do a full analysis on every home within a specific area (size of area doesn't matter), in that same 30 minutes.

If you can fully analyze 30 homes in 30 minutes, you're a rock star.

 

No, just good at it.  I designed software that can do it for me.  I analyze markets first.  It's not hard, and 100 times more accurate than the 1%, 5%, 50%, ???%...guesses.