Tips for Investing in Multi – Family Properties
The 50% Rule
HI! My name is Michael Zubretsky. I am the owner of CT Cash Homes and have some useful tips for you if you are thinking about investing in Real Estate. The 50% Rule is a guideline that many investors use when evaluating a potential purchase of an Investment property.
It is a rule of thumb so that you can quickly analyze a properties ability to cash flow and to determine if it is worth pursuing or getting additional information to make an offer.
The speed of this quick analysis is what is important, especially in a competitive market where multi-families sell quickly.
50% Rule = Speed to Analyze Cash Flow
Simply stated – The 50% Rule says that your goal will be to keep at least 50% of the rents you collect on average after subtracting the expenses.
These expenses include – Property Tax, Insurance, Utilities, Repairs, Maintenance, Management Fees.
Show on Screen – Property Tax, Insurance, Utilities, Repairs, Maintenance, Management Fees.
The expenses include everything except for your Mortgage Payment
As an example – If the rents on a two family are $1,000 per month for each unit, a total of $2,000 per month or $24,000 annually then expenses should not exceed $1,000 per month or $12,000 annually.
The remaining $1,000 per month would be used for your mortgage payment and hopefully some positive cash flow.
If Rents = $24,000 x 50% Then Expenses Should Be < $12,000 Per Year
The 50% Rule is not foolproof, it is based on a general assumption that needs to be verified during the due diligence period.
And of course, there are always exceptions to the rule.
For instance – If you notice that the costs are higher than 50% of the rents, it could mean that the rents are below market value or that some major repairs have just been completed, This property may still be a great investment.
However – If you notice that the costs are lower than 50% of the Rents, it could mean that there is some neglected maintenance or possibly a miscalculation of the costs which need to be further verified.
Remember, The 50% Rule is to be used as a screening tool for your real estate deals as part of your due diligence.
Good Luck with your investing!
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About CT Cash Homes
Have you been researching how to sell my house fast in your local area? You have come to right place! CT Cash Homes is local and we buy homes for cash! We are a Real Estate Solutions company based in South Windsor CT. We are a third generation family owned business. Our focus is helping homeowners who are having problems with foreclosure, divorce, probate or who just need to sell their home quickly for any reason. CT Cash Homes works with you to provide a solution to your problem.
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