Underwrite
50 percent rule calculator for rental expenses
The 50% rule is a blunt OpEx shortcut: assume operating expenses (taxes, insurance, repairs, management, vacancy buffer - not the mortgage) eat about half of gross rent. What's left is a rough stand-in for NOI before you build a real expense stack. Pass the smell test, then replace the rule with line items.
Assumptions
Returns stack
- Rule OpEx (50%)
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- Rough NOI / mo
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- Rough CF / mo
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When to use
Napkin underwrite on a drive-by listing; checking whether a seller's tiny expense line is lying; teaching new investors why rent ≠ profit.
When not to
Old houses and high-tax towns can blow past 50%. Never close on the rule alone - rebuild real OpEx before you commit.
Assumptions: Rule OpEx ≈ 50% of gross rent. Mortgage principal and interest excluded. Vacancy may be folded into the 50% depending on how you apply the rule - label your assumption.
Worked examples
Input
Rent $2,400/mo
Output
Rule OpEx $1,200 Rough NOI $1,200/mo
Before debt - half the rent goes to OpEx in this heuristic.
Input
Same · Debt $1,350/mo
Output
Rough CF −$150/mo
Rule says dig deeper - rent alone does not carry the deal.
Common traps
- Old houses and high-tax towns can blow past 50%.
- The rule excludes principal and interest.
- Never close on 50% alone - rebuild real OpEx.