50% Rule

[J Scott]

Talking to various investors, it sounds like people interpret the "50% Rule" (calculating expenses to be 50% of revenue) somewhat differently. I'm curious how each of you do it?

For example, some people use 50% of gross income, and some use 50% of net income. So, if a house rents for $1000 month with 20% vacancy, some will estimate expenses at $500/month (based on gross rents), for a monthly NOI estimate of $300. And some will estimate expenses at $400/month (based on net rents), for a monthly NOI estimate of $400.

I even know some people that include vacancy in the 50% expenses. They would say, if you charge $1000 month in rent, your NOI is $500/month. I can't imagine this is how most people do it.

Do you other do it?

[Nathan Gesner]

50% of gross income to cover taxes, insurance, property management, vacancy, repairs, and capex. The remaining 50% would be used to cover your mortgage (principal and interest) and anything left after that is your cash flow.