PlatwrightThe 50% rule
The 50% rule for rental property, and where it misses
The 50% rule says a rental's operating expenses, vacancy included, will take about half its rent over time. Whatever is left has to cover the mortgage. It exists for the moment before you have any real numbers for a building: one multiplication tells you whether a listing is worth an evening.
It is a filter, not a budget. Here is how to use it, and how to check it against the real costs once you have them.
Cash flow by the 50% rule
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Half the rent for expenses, then the loan payment.
Cash flow with your numbers
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Rent, minus your actual expenses and vacancy, minus the loan payment.
Your actual expense ratio
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Your expenses and vacancy as a share of the rent. The rule assumes 50%.
Difference, a month
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Positive means the rule was more cautious than your numbers.
Nothing here is sent anywhere and nothing is stored. The figures loaded are Maple Street Duplex: $1,386.38 of principal and interest, and $1,487.63 a month of actual costs from the Rental Property Analyzer, which is $15,931.60 of operating expenses and $1,920 of vacancy over twelve months.
This calculator is a screening tool, not financial, tax, or legal advice. Results are estimates based on the numbers you enter. Verify with a qualified professional before making any purchase, financing, or tax decision.
What the half is meant to cover
Property taxes, insurance, repairs and maintenance, a CapEx reserve, management, utilities the owner pays, HOA dues, vacancy and turnover. It does not cover the mortgage: principal and interest come out of the other half. Reading it the other way turns a filter into nonsense.
Tested on the duplex
- By the rule: $3,200 of rent, $1,600 for expenses, $1,386.38 for the loan, about $214 a month. That is the figure the free Deal Screener shows for this property.
- With the actual lines: $15,931.60 of operating expenses and $1,920 of vacancy a year, $1,487.63 a month, or 46.49% of the rent. Cash flow comes to $326 a month, the Rental Property Analyzer's figure.
- So on this property the rule is cautious by $112 a month.
- The rule assumed 50% of the rent; the real share here was 46.49%. Close, on this building. The next one can be far off.
Where it misses
On a newer building with low taxes and an owner who manages it, real costs can sit well under half the rent, and the rule throws away deals that work. On an older building with a management company and a roof near the end of its life, real costs can run past half, and the rule lets through deals that do not.
The rule is a reason to look closer or to move on. It is never a reason to buy. Once a property survives it, the next step is the line-by-line version: how to build the real income, and the break-even rent with every cost counted.
The rule on five properties at once
The Deal Screener applies the 50% rule to up to five properties side by side, in Excel and Google Sheets, with the monthly cash flow, cash-on-cash return, cap rate and cash needed to close for each. It is free. When one survives, the Rental Property Analyzer replaces the rule with the real lines.
- The real lines, for one property: Rental Property Analyzer.
This guide is a screening aid, not financial, tax, or legal advice. The numbers are only as good as what you put in. Verify with a qualified professional before you buy anything.