Does the 50% rule include only operating expense, or does it also include debt coverage and taxes as well?

Specifically, you have the ability to avoid passive activity loss rules set by the IRS.What does that mean? 

There are special rules on those.

Over the past decade or so, as I have been able to move up to buy a larger house to support the growing family and then buy a house at the right school district, I continued to hold on to my older houses and renting them out.

Do the 1031 exchange rules allow me to co-invest on a new property with another person?

As soon as you make additional payments beyond loan interest (i.e. loan repayment, capital expenditures) then there is no guarantee you will have positive cashflow.So the quick rules of thumb for guaranteed positive cash flow are:cap rate is greater than interest rate (you've got this)the difference between cap rate and interest rate should be large enough to produce cashflow to cover loan repayment/amortization and capital expenditure plus some amount left over for the investor.if you're in a deal where you're financing with interest-only loan payment and there is no capital expenditures, then YES cap rate being higher than interest rate would very likely produce positive cash flow.Cheers...

You also have to deal with an HOA that may be hostile to landlords or have restrictive rules that make renting out a property difficult.Also, if your hope is to build wealth with buy & hold real estate, returns are terrible if you pay cash. 

Is there a good rule of thumb when it comes to GRM? 

A house hack works for just about anybody, with not much money involved.You can also partner with a more experienced investor and/or hard money lender for extra funds & support.

Cash flow per unitSome equityCash on cash return1% rule, ect..