RealInvestorX
Rental deal math
The 50% rule: estimating rental expenses quickly
The 50% rule assumes that operating expenses, excluding the mortgage, will take about half of gross rent over time. It gives a quick cash flow estimate when you do not yet have real expense figures.
The formula
Estimated cash flow = rent x 50% - mortgage payment (principal and interest)Worked example
- Rent $2,000 a month. Expenses at 50% = $1,000. Left for the loan: $1,000.
- Principal and interest $800 a month. Estimated cash flow = $1,000 - $800 = $200 a month.
Illustrative inputs for learning, not market data or a forecast. Replace every number with figures from your own deal.
How to use it
The 50% figure includes vacancy, taxes, insurance, repairs and management. A newer property in a low-tax area can run lower, an older one higher. Replace the shortcut with itemized estimates before you commit.
Frequently asked questions
Does the 50% rule include the mortgage?
No. The 50% covers operating expenses only; subtract the loan payment separately.
Is 50% accurate?
It is a rough average assumption. Your actual ratio depends on taxes, insurance, age and condition.
Should I use it instead of a real budget?
Only for early screening. Itemize expenses once a property is a serious candidate.