What is the 50% rule in real estate?

The 50% rule in real estate is a quick guideline used by investors to estimate the operating expenses of a rental property. It states that, as a general rule of thumb, the total operating expenses of a rental property (excluding the mortgage principal and interest payment) will be roughly 50% of the gross rental income.

For example:

• If a rental property in Lane County generates $2,000 in gross monthly rent, the 50% rule suggests that approximately $1,000 will go towards operating expenses (property taxes, insurance, maintenance, property management fees, utilities paid by owner, vacancy, etc.).
• This means the remaining $1,000 would be available to cover the principal and interest portion of the mortgage payment.

This rule is a simplification and should not replace a detailed budget, as actual expenses can vary greatly. However, it’s a useful tool for quick evaluation, particularly for new investors, to ensure they don’t underestimate the ongoing costs associated with owning rental property.