How do I incorporate rehab costs into the 50% Rule?

[Carl M.]

I'm trying to understand the 50% rule when it comes to houses that need work. I think the best thing to do would be to spell out the deal I have now and let people offer their input. I have a single family home under contract. The details are below. Purchase Price: $68,000 Purchase Costs: $ 2235 Rehab Costs: $25,000 Total Costs: $95,235 After Repair Value: $130,000 Projected Monthly Rent: $1300 Refinance $96,000 for 20 years at 5% Monthly Payment: $633.56 50% of $1300 (rent) is $650 650-633.56=$16.44 monthly cash flow Not a good deal at these projections. Now if I get a 30 year mortgage my payment will be $515.35 which gets me a monthly cash flow of $134.65. A little better but not great. I don't think a 30 year mortgage is a good idea for me because I am 47 years old and that doesn't make much sense. So am I doing this right? Based on this it seems my best exit strategy is to flip the property which is what I planned on doing in the first place with a secondary exit strategy to BRRRR this one and possibly sell it in five years. There is a chance I can get $1400 for rent but I prefer to be conservative on my estimates. Any thoughts, input, advice would be much appreciated. We have successfully flipped 9 homes and I am trying to expand my thinking when it comes to creating wealth. I would like to start creating some passive income. Thanks in advance.

[Nuhan Demirkan]

Carl, I know some folks at Bigger Pockets are proponents of the 50% rule. I've been a landlord for over ten years with 20 SFH's in my portfolio and I have never experienced it. Especially if you are spending $25,000 on rehab. Your maintenance cost is reduced because most of the things that could go wrong are brand new and shouldn't. After the rental has some age on it you may experience higher maintenance cost. Plus if you are a good property manager, I strongly suggest you learn how to manage it yourself before giving it off to a property manager, your vacancy rate is minimal. I suggest you write your lease so the tenant pays the rent as a direct debit from their bi-weekly paycheck so you don't have collection issues either. As the number of rentals increase your cost to operate decreases per unit owned. Allow 5% of the rent as deferred maintenance and move on. Don't offer less than 12 months lease and raise the rent gradually at every renewal. And keep buying and holding...