50% Rule
A rule of thumb estimating that operating expenses will consume about 50% of gross rental income.
Definition
The 50% Rule estimates that approximately half of a property's gross rental income will go toward operating expenses (not including the mortgage payment). On a property collecting $2,000 per month in rent, this rule estimates $1,000 in operating expenses, leaving $1,000 to cover debt service and profit. This is a rough planning tool, not a precise calculation — actual expense ratios vary from 35% to 60% depending on property age, condition, and whether the landlord self-manages. The rule is useful for quick back-of-napkin analysis before running detailed numbers.
Related Terms
Operating Expenses
The ongoing costs of running a rental property, excluding mortgage payments and capital improvements.
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and taxes.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
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