When to Adjust the 50% Rule

Unlike the 2% rule, which I think is usually a bad rule, the 50% rule is a pretty good rule of thumb. Although, first and foremost, it is nothing more than a rule of thumb. With apartments, you should look through the operating statement and construct what you think the real expenses should be based off the following 10 categories:

- Taxes

- Insurance

- Utilities

- Management Fee

- Rehab Supplies

- Contract Services

- Marketing

- General Administration

- Payroll

- Recurring CAPEX

That being said, 50% is still a good rule of thumb. But, if an apartment has any of the following characteristics, make sure to adjust it:

- All Bills Paid, or owner pays large amount of utilities: You should increase it to at least 55% and maybe even 60% (especially if it's an older building, speaking of which...)

- Old Building: If the building is older than 50 years old and especially if it hasn't been repositioned recently, it will almost certainly cost more to do the maintenance and upkeep.

- Brand New Building: In this case, the maintenance should be less

-Tax Abated Property: If the taxes have been abated for whatever reason, obviously this will lower your expenses, at least for a while

And some smaller, but notable issues, especially if in combination:

- Off the Beaten Path: (more advertising) 

- Large Lot (more contract services)

- Flat roofs (more recurring capex)

- Galvanized plumbing, aluminum or knob and tube wiring, fuse boxes, an old boiler or cooler system. (more maintenance)

So while the 50% rule is a good rule of thumb, keep in mind these factors to help you make adjustments that will save you time in deciding which deals to pursue and which to discard.