Is 50 percent rule applies to all properties?

5 Replies

hi,

Being a newbie I've question about this rule.

does it applies to all type of properties say new properties might not need that much money for maintenance. Or say a condo HOA might cover some cost ?

could you please share your views?

thanks

pradeep

@Pradeep Tiwari ,

The 50% rule certainly DOES NOT apply to all properties. The rule is simply used as a quick tool to analyze potential rental properties. You should take a deep dive into every analysis you do to uncover what the actual operating expenses will be. As you point out, newer properties will most likely carry less operating expenses. In addition, your market will have a big impact on your operating expenses. 

Use the rule as a starting point. If the rule shows a property that might be valuable...take the next step and perform a thorough analysis. 

I have never used the 50% rule. I'm a huge advocate of not ballparking if I can find actual numbers. You can always use it to to scan through properties quickly, but then definitely drop the estimate and go for the actuals before actually purchasing anything.

I would say the 50% rule holds true for very cheap properties, then large apartment buildings. The properties in between those two asset classes will perform well on  the 1% rule as opposed to the 2% rule.