first analysis....

[Jill Herges]

Just want to make sure I understand the 50% rule correctly...this includes all expenses (maintenance, repairs, vacancy, insurance, taxes, CapEx, management) except for mortgage payments??

Example:

purchase price = 199,000

monthly gross rents = 2655

50% of 2655 = 1327

Mortgage payment= 805

1327-805 = 522 estimated cash flow monthly

Cap rate 7.9%

With 50,000 down, that gives me a cash on cash return of 12.5%

I realize the 50% rule is a very basic estimate any many things can alter this, but do my numbers seem correct?

Any input is appreciated!

[Michael Le]

Hi @Jill Herges,

Welcome to BP. Your use of the formula is correct. But remember it's just a rule of thumb so you'll want to confirm the numbers. Particularly the CapEx numbers are going to give you an average reserve amount over time but if you have a roof that is about to fail in 5 years, you won't have saved up enough to pay for it. So you have to figure out the usable life left on your big ticket items and possibly increase your CapEx reserves temporarily to prepare for it.