Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
I am trying and trying to subsribe to the 50 % rule but am unable to do so. I live in a small town most of the year and the Black Hills arent hit as much as the rest of the nation. Houses listed here arent selling low enough to make the 50% rule work. Houses that rent for 550 to 600 sell for 75000 to 100000 I am not sure what to do in this case. Keep praying abviously and keep looking.
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Originally posted by Robert Mayo:
Thanks for the feedback. I believe the 50% rule is good enough for mid-range properties, but I'm still unconvinced it works well in other cases.
For example, the "benchmark house" magically transported to downtown Palo Alto, CA, would now rent for five times as much, but I doubt repair expenses would go up five times. Similarly, moving the house to a not-so-good part of Memphis might draw half the rent, but is unlikely to have one half the repair cost.
Robert, the one thing that most people seem to forget when saying that the 50% rule does not apply, is that it is over time that these expenses will happen and must be factored in. I have yet to see a roof repair guaranteed for more than 10 years so I think your figures there are on the low side considering others renting the house and doing god know what on the roof tops these days. Why they feel the need to even go up there is beyond me, but the roof will only last as long as indicated if taken care of properly.
People here seem to have taken my comments previously as not believing in the 50% Rule, I certainly do!!!!!! I just do not believe it applies as vigourously to SFH's as it does to APT's.
But the rule does still apply as a beginning place for due diligence.
By the way, your benchmark house's expenses will vary more greatly than you expect them to because of the vast difference in the building and enforcement codes of the different areas.
Memphis is much more lienient in such things than CA is as to who can do what and when which in turn affects the overall cost in time value of repairs if nothing else. Therefore the Memphis house repairs will be much much much less that the CA house with those same repairs due to more or less govt intervention.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
If you transported that benchmark house to Palo Alto your rents might be higher, but the price would be dramatically higher. According to rentometer, your $5000 rent would be on the higher end, $3500 being more typical for three beds. But a price of $500K or higher would be typical. Over a million not at all out of the question. Try making that cash flow.
Real Estate Investor · Mountain View, CA · Member since 2009 · 49 posts · 16 votes
16y
Thanks guys, yes, I understand that more expensive property will not cash flow. In downtown Palo Alto, the priciest part of that city, I would expect cost of $1.4M for a small 3/2 and a rent of $5,000, making it a 0.35% deal. (This is down from the market peak of around $1.7M.)
I live in a nearby but much less expensive city, and when I rented my place out it was a 0.37% deal. That's why 2% deals seem like a whole other world to me. No, I don't plan to buy any 0.4% deals anytime soon.
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
16y
Originally posted by Robert Mayo:
Thanks guys, yes, I understand that more expensive property will not cash flow. In downtown Palo Alto, the priciest part of that city, I would expect cost of $1.4M for a small 3/2 and a rent of $5,000, making it a 0.35% deal. (This is down from the market peak of around $1.7M.)
I live in a nearby but much less expensive city, and when I rented my place out it was a 0.37% deal. That's why 2% deals seem like a whole other world to me. No, I don't plan to buy any 0.4% deals anytime soon.
Real Estate Agent · Cheyenne, WY · Member since 2009 · 205 posts · 51 votes
16y
I've been evaluating a 4-unit foreclosure property. I estimated the rents to be around $600/unit x 4 = $2400/month. Using the 20% figure for Maintenance/repairs/capital improvements/legal/misc, I get $11,503 per year for these expenses. This seems insanely high for these expenses, especially given that I'll be gutting everything and installing new appliances and installing a new roof.
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Originally posted by Mariah J.:
Ah, yes. The $11.5K includes my $300/month utility estimate and the PM fee. Still, $5,700/month seems a little bit high.
First you say per year and mike helped correct your math, then you came back saying per MONTH.
If indeed it is 5760 per year then it is only 480 per month which is exactly 20% of the monthly rents.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
16y
That's only because you're not experienced in the rental property business and because you really haven't even identified what's in your 20% number. A couple of days ago, it was a few named expenses. When I pointed out that you missed a bunch of expenses, you simply added them to your 20% expenses group. It appears that you simply pulled the 20% number out of thin air and aren't even sure what that 20% covers.
The rental property business is VERY UNFORGIVING. The vast majority of newbies fail and they fail exactly because they don't understand the expenses (and therefore underestimate them). Ignorance is NOT bliss in the rental business.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
16y
Originally posted by Michael Ueltschey:
Tim,
3% on all your properties? Thats outstanding...Please share how you do this.
I can get 4% in certain areas of Jackson MS...however I am uncertain of these areas as there are not Owner occ sales...15k property will rent for 600...but it just scares me. Are these the deals you are finding? or are they higher end properties in good areas?
"but it just scares me"
It doesn't scare me. :wink: That's how I do it. In all seriousness I don't go into the bad neighborhoods but I don't go into pretty subdivisions either. Anymore you can go somewhere in between and do alright. My worst performer is in the nicest neighborhood - a 3 flat that pro forma's (we all know what that means) about $1450 a month that I'm into for $40,000.00. This one has an upside though. It is zoned commercial and has frontage on the second busiest street in town. Currently trying to sell it to someone who wants an office or something in the front unit while using the top and back unit rents to cover their overhead.
Find a neighborhood that the guru zombies screwed up in about 3-4 years ago and you'll find deals left and right. Be prepared to work though to get my numbers. I get my numbers because I work. I'll sell my properties at 2% but you better believe I won't sell at 3%+. I earned that extra ROI and have the scars on my hands to show how.
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
16y
I'm with Tim on this one! If you study the target area properly, you should be investing confidently. Also check out this article I wrote.http://www.biggerpockets.com/articles/1508