Advertiser Disclosure

advertising disclaimer
Skip to main content
street houses neighborhood

What Is the 50% Rule?

How profitable will a rental property be? This rule can help you figure it out.


[Updated: Feb 04, 2021 ] Jan 14, 2020 by Matt Frankel, CFP
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

what is the 50% rule?

Click to enlarge

What is the 50% rule?

The 50% rule says that real estate investors should anticipate that a property's operating expenses should be roughly 50% of its gross income. This does not include any mortgage payment (if applicable) but includes property taxes, insurance, vacancy losses, repairs, maintenance expenses, and owner-paid utilities.

The 50% rule also doesn't include any property management expenses or homeowners association (HOA) dues.

In a nutshell, the 50% rule says that if you buy an investment property in cash, you should anticipate having half of the rental income left after covering all the standard property ownership costs.

How do I use the 50% rule?

The calculation is very simple. For example, if a property could generate $2,000 in monthly rent, this means that $1,000 will be needed for the rental property expenses I discussed. This means that you can expect to receive $1,000 in net operating income from the property.

Of course, if you have a mortgage on the property, be sure to include the monthly mortgage payment in your cash flow calculation. The same can be said if your property is located in a community with an HOA or if you decide to hire a property manager to handle the day-to-day operations.

As a final thought, keep in mind that the 50% rule is just a guideline. Your property's expenses aren't likely to be exactly 50% in a real-world situation, but it does usually provide a good estimate.