50% includes vacancy.
I’ll take a sure thing every time. I’m not betting on appreciation during the middle of a bust that followed the biggest real estate boom in history.
I couldn’t agree more…I guess I’m a propertymanager groupie but I have used the things Mike talks about and for me they work very well…I’m out to make money right away and stick to the rules that work for me…Betting on capital appreciation after the insane runup in RE is pure gambling…I want properties for cheap (inspected ofcourse)and I need atleast %15 cash on cash if I’m buying with no mortgage…The current market is a perfect time to get started buying these kinds of properties…So many underfunded overleveraged speculators in this game and it’s just getting started…Couple the real world rules with a solid property mgr , you can make some nice cashflow…And if you look hard enough both are out there…
rookieNYC- You’re investing in the Buffalo area right? Investing for appreciation would be insane there so I’m glad to see you’re not looking to do that. Homes appeciate at about what 0.001% a year there? :flush
rich
I own nothing in buffalo and never have…in the past I was considering buying there but own nothing there…
I wasn’t sure if it was you I was thinking of or someone else, my mistake.
np …Not that where I do invest is worlds better but it creates a decent income…More importantly what I try to do is buy cheap and then do some minor renovations move the rents up as much as I can then price the house down to a %10 cap and market it…In the meantime I get some decent cashflow and possibly get lucky and get a buyer…But if I dont I want to make sure the house is paying me each month…Everyone invests in RE for different reasons/methods/outcomes etc…Thats whats great about this,so many ways to make money…Just like the stock market…
buffinvestor,
Excellent question. I have wondered the same thing for a long time. Why estimate a figure that is easily known?
The best way i’ve found to arrive at an expense percentage exclusive of taxes and insurance is to look “Income and Expense Reports” that are produced by the Institute of Real Estate Management and also by the National Apartment Association. Both of these books should give you a detailed breakdown of the total expenses that are involved with different types of income producting propertes. The figures in these books are real expenses that are taken from thousands of income producing properties throughout the US.
Hope that helps
I invest in Virginia and Buffalo…Buffalo is one of those “constant” 5-7% appreciation areas…
Virginia used to be 20% a year (loved it since I’m holding multi-millions there), then levelled off to 0%, now at about 5% or so…
I found this thread while searching the site and I found it extremely helpful. I thought I would bump it to the top so others could benefit from it.
Actually, another question for Mike on his 50% rule…
Does that include water, sewage payment? This seems to fairly typical bill that landlords cover and is many times included in the rents.
the 50% rule includes anything that it takes to operate your properties on a daily basis. Water and sewage payment are definately operating expenses and should be included in your 50%. Larger capital improvements would not be included such as new roof, new appliances, etc. Think of the 50% expenses as recurring expenses and large one time expenses as capital improvements. Good luck.
Stevie-o,
JBaldwin is right in that the 50% rule does include sewage, water, and all the other operating expenses. It also does include the capital expenses (new roof, furnace, etc), although as JBaldwin said, capital expenses are not technically an operating expense.
Good Luck,
Mike
Thanks Mike and JB.
I’m curious Mike, have you ever broke down your rental numbers over the last several years to see if yours consistently come up to 45-50%, or if they come up less, or more?
Not that it would change the rule, or change anything for that matter, just curious to see if how your rentals have done compared to the 50% rule.