All Forum Posts by: Kirk B

I was actually hoping this tenant would either pay up or move out on his own.

Upstate NY, small village

How can the terms of a loan NOT impact the 50% rule!!

I have asked this very same question here before and gotten the same answer that Mike oh provided (I love Mike Oh's contributions fyi):

"The 50% rule only states that the OE will be 50% of Gross Rents..........."

I think this is a fallacy in his argument over how to apply the 50% rule.

If one is to use the 50% rule to determine whether a property is a good purchase, then the terms of the loan MUST be factored in.

Lets assume for a moment that you can only get a 15 year loan on a property. And, you are an investor looking to get $100/door/month CF. Lets compare that to a 30 year loan and determine max purchase price with all else being equal:

Units: 2
Rents: $1200
Loan: 7%, 15 yrs (P+i=$400/month)
Max purchase price: $44,502.38

VS

Units: 2
Rents: $1200
Loan: 7%, 30 yrs (P+i=$400/month)
Max purchase price: $60,123.03

OR conversely

Purchase: $50,000
Rent: $1200
CF @ 15yr 6%: $89.04/m/door
CF @ 30yr 7%: $133.67/m/door

This is a huge difference!! If one finances for 15 years instead of 30 you magically spend less per month on maintenance, taxes, property management and other expenses?

So is it a good deal if you want $100 per door? The answer, I believe, is you have to look at the deal in terms of what is available in YOUR own personal situation.

If you can get a loan for 30 years at 5.0% interest rate, I would look at the property from that perspective. If you can only get 15 years with 7.0% you evaluate it from that perspective.

Whenever the 50% rule is discussed I often read the phrase "REAL WORLD EXPENSES." So I think using your available financing terms is the proper application of the 50% rule. I think MikeOh has the theory almost all right, but on this detail I think he is wrong.

Last month the check bounced. Then the tenant paid the rent and the bounced check fee.

This month I still have not received the rent. So I left him a message stating I would be posting a Pay Rent or Quit notice on his door. And, that if he doesn't pay rent plus late fee by Monday, I will begin eviction process.

I have never been through an eviction before. What am I in for?

I like the 50% rule and it looks like you are well ahead of that. Nice job!

How long until you can get $30k+ out of it so you can do more of these?

I do believe that the sale of a house supercedes a lease agreement. You can terminate that leade agreement when you buy the property. I would consult with a lawyer first, but I would take the risk.

It is very difficult to prove intent.

Political Science of Bigger Pockets

Check one:
[ ]I don't like Palin, I like President Obama (I am a Socialist)

[ ]I don't like President Obama, I like Palin (I am a Fascist)

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Reality check:

Palin did a horrible job presenting herself on several occasions while running for VP. She clearly made herself look unpolished and inexperienced at times.

I'm not the expert, but I operate under the assumption that the 50% rule only applies if utilities are paid by tenant.

Do you really think that "average" Americans will buy your ridiculous theory? Your time would be better spent chasing black helicopters. Go join a militia.