Fifty Percent Rule

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The 50% rule states that, over time, a building's expenses (not including debt service) will equal approximately 50% of it's gross income. "Expenses" include vacancy, repairs, capital improvements (new roof, windows, furnace), taxes, insurance, utilities, legal, accounting, etc. EXCEPT mortgage payment.

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This will vary. A brand new single family home where tenant pays utilities might only be 35% the first few years, while a rundown 3 unit might be 70% or more, but over time, country-wide, the number seems to eventually settle at around the 50% mark. Although NO deal should be completely accepted or rejected using this rule, it's a great tool to quickly check the merits of a deal.

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