50% Rule in Rental Property: How It Works and Why It Matters
Apr, 19 2025
The 50% rule is one of those shortcuts landlords and property investors love to toss around, but what does it actually mean? It’s pretty simple: if you collect $1,200 a month in rent, you should count on about $600 going toward the property’s running costs—things like repairs, insurance, property taxes, and vacancy periods. This guesswork helps you spot risky deals before you sink hours into spreadsheets.
Why does this rule matter? Too many new landlords get blinded by the gross rent and forget how fast costs add up. You don’t want to end up in the red because you missed a hidden expense. Knowing about the 50% rule gives you a reality check—and stops you from believing every pretty property listing is a gold mine.
- Breaking Down the 50% Rule
- What 'Expenses' Actually Mean
- When the 50% Rule Works (and When It Doesn’t)
- Practical Tips for Smarter Rental Analysis
Breaking Down the 50% Rule
If you’re eyeballing rental property numbers, the 50% rule is a quick way to estimate if a place actually makes sense—without breaking out a financial calculator. The idea comes straight from streetwise landlords, not stuffy textbooks. Here’s the core: expect half your gross rental income to go toward operating expenses. That’s before you even pay the mortgage. It’s a shortcut to help you weed out properties that bleed money instead of building wealth.
This isn’t just made up out of thin air. The rule got famous from books like Brandon Turner’s “The Book on Rental Property Investing.” He puts it succinctly:
“If a property rents for $1,500 per month, expect to spend about $750 per month on expenses, not including the mortgage.”
So what counts as expenses? Think property taxes, insurance, repairs, routine maintenance, vacancy periods, utilities (if you’re covering them), even property management if you’re not hands-on. Not just the obvious stuff—those smaller things add up way faster than most rookie landlords expect.
Here’s why the 50% rule is popular:
- Speed: You can judge deals at a glance, skipping hours of number crunching on duds.
- Safety buffer: Underestimating costs is a common rookie mistake. This rule keeps you realistic.
- Market experience: Many seasoned property owners find that, long-term, their expenses hover close to that 50% mark, especially in older buildings or areas with higher maintenance.
Check out this sample:
| Monthly Rent | 50% Rule Estimate for Expenses | Left Over (Before Mortgage) |
|---|---|---|
| $1,200 | $600 | $600 |
| $2,000 | $1,000 | $1,000 |
| $900 | $450 | $450 |
Keep in mind, it’s just a rule of thumb—not a guarantee. If you’re looking at new buildings or super low-tax states, expenses may run lower. But for most typical buy to let properties, this quick math gets you surprisingly close, saving you time and stress later on.
What 'Expenses' Actually Mean
Expenses in the 50% rule aren’t just about the obvious costs like property taxes or insurance. They cover pretty much everything you’ll pay out to keep your rental property running smoothly. If you think this only means fixing toilets, you’re missing the big picture.
So, what are we really talking about? Here’s a breakdown of the expenses that usually fall into that 50% bucket:
- Property taxes: Local governments don’t care if your tenants pay on time—you have to pay property taxes either way. These are almost always unavoidable and can increase each year.
- Insurance: Landlord insurance protects you from fires, floods, or lawsuits if something goes wrong. This isn’t the same as regular homeowner’s insurance and costs a bit more.
- Repairs and maintenance: Think leaky roofs, broken HVAC systems, or those endless little fixes—these costs really add up over time.
- Property management fees: If you use a property manager, expect to pay around 8–12% of the monthly rent. Even if you DIY, there are still costs to advertise or background check tenants.
- Vacancy costs: Every so often you’ll have an empty unit, which means zero rent coming in but lots of bills still showing up.
- Utilities (maybe): Sometimes landlords pay for water, trash, or even heat, depending on what’s written into the lease agreements.
- HOA fees: If your rental property is in a community with a homeowners’ association, those monthly dues go right into expenses.
Here’s a quick look at a typical cost breakdown for a single-family buy to let investment:
| Expense Type | Percent of Gross Rent (Avg.) |
|---|---|
| Property Taxes | 15% |
| Insurance | 5% |
| Repairs/Maintenance | 10% |
| Property Management | 8% |
| Vacancy | 7% |
| Utilities/HOA | 5% |
That table doesn’t include your loan payment—remember, the 50% rule is about costs before the mortgage. Only after these expenses are taken out should you look at what’s left for the bank and, hopefully, your wallet. If you leave out even one of these, your numbers will be way off and the whole idea of the rule falls apart.
When the 50% Rule Works (and When It Doesn’t)
The 50% rule is handy, but it’s not magic. It works best in middle-of-the-road neighborhoods where rents and expenses line up with national trends. In other words, the typical single-family homes, duplexes, or small apartment buildings in average U.S. cities fit the bill. If you’re in a place where property taxes and insurance aren’t sky-high and your tenants take reasonable care of your rentals, this shortcut can give you a pretty close idea of what you’ll actually pocket once the bills hit.
But here’s where things get sketchy: the rule starts to break for properties on either end of the spectrum. That fancy downtown condo with crazy HOA fees? Expenses could eat up more than half your rent. On the flip side, if you’re buying a budget place in a low-tax rural town and you handle repairs yourself, your costs might come out way less than 50%—maybe closer to 35%. Suddenly, the 50% rule would make any deal look worse than it really is.
Want to see how the rule matches up to reality? Check out some real averages:
| Expense Category | Average % of Rent |
|---|---|
| Maintenance & Repairs | 8-12% |
| Property Taxes | 10-15% |
| Insurance | 3-6% |
| Vacancy Loss | 5-8% |
| Management Fees | 7-10% |
Add those up and it’s not hard to see why 50% feels about right for a lot of properties—but not all. The trick is to know your local market. Expensive cities or high-crime areas often spike costs higher, while small towns or well-kept communities might give you wiggle room. Also, large apartment complexes with tons of units sometimes run on thinner margins, not following the 50% rule as closely.
If you rely only on this rule for places with unusual features (think vacation rentals, luxury homes with fancy amenities, or cities with rent control), you can get burned. Always double-check by running the actual numbers when properties fall outside the normal box.
Practical Tips for Smarter Rental Analysis
Before you run out and buy your first property just because the 50% rule makes the numbers look good, slow down and dig a little deeper. This rule is a starting point, not a deal closer. If you want to avoid surprises, follow some simple steps to check if that deal is solid.
First, be realistic about your property’s expenses. Don’t copy numbers from a random online calculator and think they’ll match your situation. Pull the actual tax record, call the local insurance broker for a quote, and ask landlords nearby what repairs really cost in that area. It helps to have a rough table for ballparking where your money goes. Here’s a quick look at typical expenses for buy to let properties:
| Expense Type | Average % of Rent |
|---|---|
| Repairs & Maintenance | 10-15% |
| Property Taxes | 8-12% |
| Insurance | 3-5% |
| Vacancy/Turnover | 5-8% |
| Utilities (if landlord-paid) | Varies |
Don’t forget about management fees—if you’re using an agent, that’s often another 8-12% gone in a flash. Each market is different, so use real numbers if you’ve got them, don’t just hope for the best.
To get even sharper with your rental property analysis, go beyond what the seller or estate agent tells you. Some sellers will conveniently forget the string of leaks or the dodgy boiler. Request at least a year’s worth of expense records or utility bills. Tip: If they can’t provide good records, treat that as a warning sign.
Next up—stress test your numbers. What happens if the rent drops by 10%, or if you lose a tenant for two months in a year? Run those “what if” scenarios before you sign anything. If your deal can handle bad luck and you still see a positive cash flow, it’s probably strong. If not, walk away or renegotiate.
- Compare several properties using the 50% rule—it’s an easy way to spot outliers you should avoid.
- Never trust the asking rent; double-check what similar homes actually rent for in your patch.
- Factor in possible legal costs for evictions or tenant troubles, especially if you’re new to buy to let.
- If you budget for bigger repairs—like a new roof in five years—you won’t be blindsided down the road.
This hands-on work saves you pain (and cash) later. The 50% rule is handy, but your own homework makes the real difference.