The 50% rule halves the rent. One half is assumed to cover everything except the mortgage. Whatever the mortgage doesn’t eat out of the other half is your cash flow.
On the house below the rule says $44 a month. The same house’s own costs, added up line by line, say $420. Same rent, same loan, nearly ten times the answer.
What is the 50% rule?
Take the gross rent, take half of it, and treat that half as the operating costs: property taxes, insurance, repairs, money set aside for a roof or a furnace, a property manager, and the stretches when nobody is paying rent. Then subtract the mortgage payment from what’s left.
So the rule rests on a single claim: operating costs run 50% of rent. Everything else is arithmetic on top of that one guess.
Where does the 50% number come from?
No agency sets it. It travels between investors as a rule of thumb, and it isn’t published anywhere as a standard.
What is published is the raw material. The IRS lists the expense lines a rental can deduct in Publication 527, from cleaning and maintenance to management fees and insurance, and it separates a repair you deduct now from an improvement you have to capitalize. The Census Bureau collects what rental properties spend in its Rental Housing Finance Survey. Neither one hands you a share of rent, because the share depends on the house: the tax rate in that county, the insurance quote for that roof, and whether a tenant or the owner pays the water bill.
Two of the inputs below do have current figures behind them. The Census Bureau’s Housing Vacancy Survey put the national rental vacancy rate at 7.3% for the second quarter of 2026, released on July 28, 2026, and noted it was not statistically different from the 7.0% a year earlier. Freddie Mac’s weekly survey had the 30-year fixed average at 7.03% for the week of September 24, 2026, though that survey covers loans on homes people live in, and a loan on a rental normally prices higher.
One house, run both ways
A $250,000 single-family house renting for $2,750 a month, bought with 20% down on a 30-year loan at 7%. Property taxes are $3,000 a year, insurance $1,400. Repairs and big-ticket savings are set at 5% of rent each, management at 8%, and vacancy at 5%.
| The 50% rule | Its own costs | |
|---|---|---|
| Rent | $2,750 | $2,750 |
| Half the rent, for everything but the mortgage | −$1,375 | – |
| Empty and unpaid (5%) | – | −$137 |
| Property taxes | – | −$250 |
| Insurance | – | −$116 |
| Repairs (5% of rent) | – | −$138 |
| Big-ticket savings (5% of rent) | – | −$138 |
| Property management (8% of rent) | – | −$220 |
| Mortgage | −$1,331 | −$1,331 |
| Cash flow each month | +$44 | +$420 |
These are example figures, not a forecast for any market.
The itemized costs come to $999 a month, or 36% of the rent, once the empty weeks are counted with them. The rule charges this house $1,375. The $376 gap is the whole difference between a deal worth a second look and one that barely moves.
The full walk through of this ledger shows where each line comes from, and the repair and replacement budget shows what happens when 5% and 5% turn out to be 8% and 8%.
Does the 50% rule work on a small apartment building?
Much better, and for a reason worth knowing. A building pays for things a house bills to the tenant: water and sewer, trash, power in the hallways, lawn care, snow.
Here is a fourplex at $499,000, four units at $1,575, with $6,400 of property taxes, $3,600 of insurance, $450 a month of building utilities and 6% vacancy.
| The 50% rule | Its own costs | |
|---|---|---|
| Rent roll | $6,300 | $6,300 |
| Half the rent roll | −$3,150 | – |
| Empty and unpaid (6%) | – | −$378 |
| Property taxes | – | −$533 |
| Insurance | – | −$300 |
| Water, trash and common-area power | – | −$450 |
| Repairs (5% of the rent roll) | – | −$315 |
| Big-ticket savings (5%) | – | −$315 |
| Property management (8%) | – | −$504 |
| Mortgage | −$2,656 | −$2,656 |
| Cash flow each month | +$494 | +$849 |
Costs here are 44% of the rent roll, not 36%. The rule is still $355 a month pessimistic, but it lands close enough to be worth something. That is why the rule survives: it came out of small apartment buildings, and it gets carried onto single-family houses where it doesn’t fit.
When is the 50% rule actually useful?
For one job: throwing out listings fast. If a house can’t work with half its rent gone, it won’t work, and you can stop reading. That is a real saving when there are forty listings open.
It also works as a sanity check in the other direction. When your own itemized costs come in under about a third of rent on a house, something is usually missing. The most common omissions are management, because people plan to self-manage and forget their own time isn’t free, and big-ticket savings, because nothing has broken yet.
What should you use instead?
Three numbers, in this order.
- The county’s current tax rate, not the seller’s last bill. In many places a sale resets the assessed value, so the new owner pays more than the old one did.
- An insurance quote for the address. Premiums track the roof, the wiring and the claims history, which no percentage of rent can know.
- Repairs and replacement savings as separate lines. A dripping tap and a $12,000 roof are not the same expense, and the roof is the one that ends a first year badly.
Then run the house with your own lines in the rental calculator and compare it against the rule. If the two answers sit close together, the 50% rule was fine for this house. If they’re $376 apart, keep your version. The seven mistakes post covers what usually causes the gap.