The 50% Rule is a rough heuristic for estimating NOI without detailed expense analysis. It says approximately half of gross rent will be consumed by operating expenses (taxes, insurance, management, maintenance, vacancy, capex reserves).
Then subtract mortgage payment from estimated NOI to get estimated cash flow.
When the 50% Rule works: older properties with higher expenses, properties in higher-tax markets, or portfolios with active management.
When it breaks down: newer properties with lower expenses and taxes, or very high-rent markets where expenses don't scale proportionally with rent.
Related Terms
NOI
Net Operating Income — a property's income after operating expenses, before mortgage.
Operating Expense Ratio (OER)
Operating expenses as a percentage of gross income — a quick measure of property efficiency.
1% Rule
A quick screening heuristic: monthly rent should be at least 1% of the purchase price to support positive cash flow.