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50% Rule

50% Rule

What is the 50% Rule?

The 50% rule is a guideline that helps you estimate your operating expenses. This metric is not intended to include mortgage payments or other loans.

Generally, when you invest in a property, it's important to budget for expected maintenance expenses. Since most states require landlords to maintain a "standard of habitability", the landlord is often responsible for repairs and more.

How do I calculate the 50% Rule?

\[ {Operational \, expenses \over Gross \, annual \, rental \, income} * 100 > 50 \% \]

Example

Imagine I have a rental property that grosses $2000 in monthly rent. If my property expenses are around $10,000, does my property pass the 50% rule?

Yes, it does. 10000 / (2000 * 12) * 100 = 41.6% < 50% = TRUE.

50% Rule considerations

Remember that the 50% rule is a general rule of thumb:

  • In many cases, operational expenses won't be exactly 50% of the annual gross rent.
  • If there is more deferred maintenance than expected, the 50% rule may be violated.

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