ANALYSIS

The 50% Rule: Quick Math for Rental Property Investing

Updated March 2026

The Rule

Half of gross rental income goes to operating expenses. Collect \$1,500/month? Budget \$750 for taxes, insurance, maintenance, management, vacancy, and reserves. The remaining \$750 covers your mortgage. Whatever's left is cash flow. It's rough, it's imprecise, and it's surprisingly accurate for quick screening.

When It Works

The 50% rule is most accurate on older single-family homes (built before 2000) in the \$80-200K range. These properties tend to have higher maintenance costs, property taxes that represent a larger percentage of rent, and more frequent turnover. In markets like Toledo, Cleveland, and Memphis, I've found actual expenses consistently land between 45-55% of gross rent.

When It Fails

Newer construction (post-2010) in low-tax states like Alabama or Tennessee often has real expenses closer to 35-40% of gross rent. Low taxes and newer systems reduce costs. Conversely, properties in high-tax states like New York, New Jersey, or Illinois can have expenses at 55-65% — the 50% rule is too generous there. Also fails on multifamily where you can spread fixed costs across more units.

How to Use It

Use it for 10-second deal screening, not final analysis. See a listing at \$150K renting for \$1,400/month? 50% rule says \$700 to expenses, your mortgage on \$112K at 6.5% is about \$708. Cash flow: negative \$8. Close to breakeven at first glance — might be worth a deeper look depending on appreciation potential. If the 50% rule shows deeply negative, move on fast.