Q & A Saturday – What is the 50% Rule for Rentals?

Welcome to our Q & A Saturday video.

In these Q & A Videos we will answer your questions about real estate.  Any real estate related topic from questions about selling your house, buying a house, real estate investor questions, landlording questions, local market questions and many others things are all fair game. 

Today’s question is “What is the 50% Rule for Rentals?

 50% Rule for Rental Properties

In this video Shaun gives a quick overview on the basic aspects of the “50% Rule” and estimating rental expenses:

 

Some of the main points covered in this video are:

1)      Explaining what exactly the 50% Rule is

2)      A discussion of what a rental expense ratio consists of

3)      Pitfalls a new investor need to be aware of

4)      Why a seller needs to understand what the expenses are when selling to an investor

 

While not many specific expense items were discussed in the video it is important to be aware of many of the most common and important.  Some are pretty obvious and most people will account for them like taxes and insurance expenses.  Others that people will not consider as often are vacancy, maintenance and repairs, management costs (should factor in even if you plan on doing this yourself), Capital Expenses/CapEx (Major infrequent items like roofs, furnace/boiler, hot water heater etc.) and many others.  Any questions on other possible expenses feel free to leave a comment and I can go into as much detail as needed.

 

Hope you enjoyed the video and leave any other questions you have about the topic below or any other topics you would like to see covered in future videos.  I encourage anyone that has things they would like to talk about to let me know what they are.  You can always fill out a contact us form here and put Q & A in the subject, just leave a comment with your questions below here, send an email to info@masshomesale.com, or post it on our Facebook page or Twitter account.

 

Some resources showing the validity of the 50% Rule:

–          “In terms of operating ratios, less than 50 percent of a typical property’s annual collections were used to cover operating expenses. All four building types remained relatively stable with low-rise buildings with 12-24 units experiencing the highest operating ratio at 49.7 percent, factoring in a 3.1 percent decline from the prior year. Elevator building reported the lowest operating ratio at 42.0 percent, representing a 1.5 percent decline from 2012.” From the Institute for Real Estate Management

–          Report on 2014 Operating Income and Expenses from the National Apartment Association

–          Cost of Operating US Rental Housing: 2013 Infographic

–          The 50% Rule: How to Quickly Analyze a Multifamily Investment Property via BiggerPockets

 

 

 

(Image Credit: discount offer 50 via designcrowd.com)

 

 

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