The 50% Rule: How to Quickly Analyze a Multifamily Investment Property [Video]


As if I haven’t caused enough controversy this week (see my recent post Is it a Lie to Tell the Tenant I’m Not The Owner?) today I wanted to make a video explaining something that has caused a good deal of debate over the years here on BiggerPockets:

The 50% Rule.

In the following video, I explain what the 50% Rule is, and how you can use it to quickly estimate the cash flow you can receive from a buy and hold real estate investment.

The 50% Rule is:

Over time, 50% of your real estate investment’s income will be spent on expenses, not including the mortgage.

It’s just a simple way to determine cash flow – and something I use every single day, dozens of times.

Now, for those of you who are immediately up in arms about this “rule” – let me be the first to say it:

This is just a rule of thumb.

It’s use is not for deciding with 100% certainty if a property is going to be a worthwhile investment. For one thing, no one can ever know this 100% for sure. Secondly, I’m not going to take the time to analyze every single property that crosses my desk with my spreadsheet – like I did in my post How to Buy a Small MultiFamily Property: A Step by Step Case Study.

So the 50% rule is largely about speed and convenience, but it’s also about one more very important thing:

The 50% Rule is About Being Conservative

You see, when you normally run the numbers on a property (or when you get the pro forma numbers from a real estate agent) the expenses are FAR less than 50% of the property. However, most of these calculations don’t account for the “Oh crap, the furnace just went out” or the “Oh crap – the tenant is late again and now I have to evict.” So even if the 50% rule is “too conservative” – in my book, that’s just fine with me.

When I do an investment analysis, I always look at three expense figures:

  • The historical expenses – what the expenses actually were
  • My opinion of the expenses – my spreadsheet of what I expect the expenses to be once I buy
  • The 50% rule – well… just watch the video below.

Then, I simply look at the highest number and use that in my calculations, being the most conservative in my estimates as possible by being the most liberal with my expense assumptions.

I’d rather miss out on a few deals for being too conservative than buy some deals that sucks more money out of my wallet than a Tall 180 Degree Non Fat Peppermint Hot Chocolate with Whip and 1 Pump Vanilla from Starbucks.


So why you are all watching the following 4 minute video, I’m going to head to Starbucks and get my little drink from heaven. Don’t judge me or my goofy look in the video photo below! 😉

Thoughts? Leave your questions and comments below!

I always respond! (try me!)

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.


  1. Good post Brandon. Good name too. My son is named Brandon also. This is a good rule of thumb to narrow down potential acquisitions. Time is money and time is precious and any help to save time is greatly appreciated by all. Newbies, please take note that the 50% rule is indeed just a rule of thumb and is not to be used as an overall analysis of a property before you buy it. Please do dig deeper before you make any investment decision.

  2. As a real estate attorney and landlord myself, I see investors and homeowners underestimate the actual cost of owning a home all the time. This is great advice for any investor. Gosh it’s a great way to think for a first-time home buyer as well.

  3. Paul Grgurich on

    Hey Bradon, excellent information…as always!
    I have two questions – hopefully they are not to dumb…
    1. Do you – have you – or can you use an investor for the 25k down?
    2. If so what would the arangement look like? Even with the whole 264 it would take forever to payback so you could start reaping the rewards…
    I am thinking this might not be such a good deal for that scenario.

    • Brandon Turner

      Hey Paul, thanks! In answer to you questions: Yes, you could use an investor. I’ve done this strategy several times. I will split a deal with a partner, where he brings the cash and ability to get a mortgage (Good, solid job) and I bring the deal/experience and we split everything. It works well, but you really gotta find a great deal to make it work profitably. But 50% of a deal is better than 0%, so definitely consider the idea.

      • I’m currently using that same idea with an investor on a property now. He brought the money and I’m doing the leg work. After its all done, he’s looking at making over a 20% return within 90 days and is very happy!

        • How does the investor cash out in 90 days with a 20% return? Are you flipping or buying and holding? I’m just trying to follow the math, so that I might be able to use this approach in the future. Thanks!

  4. This video is very informative and clear! I’m just starting to do some preliminary analysis on properties in my area to see what the cashflow looks like (as practice- I’m still educating myself before making an investment sometime in the not too distant future), and this will help me pre-screen the properties I look into before doing a full analysis.


  5. Another great addition to the BP video library – nice job Brandon. What kind of video editing software do you use for these things (or do you outsource it)? I like the blackboard feature on this one – really helps to make those numbers stand out.

  6. Brandon, great video. As a person who loves to “run the numbers” and do property analysis, the 50% rule is an excellent starting point when evaluating multifamily properties.

    The video format is also great for introducing people to BiggerPockets.

  7. john milliken on

    YES! great video Brandon. i just went though a bunch of old forum topics on the rule to gather what this rule is all about. it’s just a quick rule of thumb to weed out overpriced bad deals. once you see a potential positive cash flow deal, only then you can really dig deeper into analyzing the numbers. great rule.

  8. Julie Oldham on

    Nice video, Brandon! I liked the blooper reel at the end. I’m wondering how you would use this rule for condos and town homes? I own a few of these, it makes good sense in my part of the country. There are significant HOA dues to pay on these properties, but I never have to worry about a yard, roof, exterior maintenance of any kind, and my insurance is much lower because I only have to cover the walls and everything inside of them. So I think I can reasonably expect that less than 50% of my rent will go to maintenance etc. Do you agree? And if so, what percentage would you use for your formula? I’ve only owned these places for about two years, so I don’t have a lot of history with their expenses, but so far they’ve been cash-flowing nicely. I’m also good at analyzing the financial docs and only buying where the HOA is fiscally healthy and well-managed with a small chance of any special assessments.

    • Brandon Turner

      Hey Julie, thanks – and those were only like 1/4 of my mistakes! 🙂

      Honestly, I’m not sure how they would work with those kind of properties. I think I would lean more heavily on the other two methods I use for determining expenses, only because newer properties may have less problems. But maybe not? Might be a good question to ask on the forums. Thanks for the comment!

        • Also, when we use the 50% rule, it factors in 10% profit. So the $236 left over may be $236 plus 10% of the gross rents. More profit is better though, so using that 10% as buffer or icing on the cake would make it an even better cashflow deal!

    • When I do a first pass on a condo I still just use 50%.
      Really instead of a lot of little expenses you have one big one for a bunch of covered items. Then you have the “Oh Crap!” buffer for an assessment rather than for a CapEx project.

      So similarly you do this as a sniff test and if it doesn’t stink part of your due diligence is seeing what the fee is and what it covers and the general financial health of the association to gage the likelihood of an assessment.

  9. Hey Brandon,

    The video was great! I am just curious about the shifting from left to right in the video. It kept my attention longer. Is that a strategy used by other video posters?


    • Brandon Turner

      Hey Tony, thanks! I’ve seen the strategy used a few times. I’m not exactly sure why they do it – but I bet you are on to something there. I think it’s more engaging. I dunno – maybe some people get annoyed! (hopefully not too bad!)

      Thanks for the comment!

  10. Great video Brandon. I like that quick analysis of the 50% rule. I agree you need a quck way to view deals and if it meets that criteria then you dig in deeper. Kind of like the 70% rule before you take it to the next level of due diligence.
    Love the bloopers at the end. Made me laugh because it reminded me of myself and all the retakes I had to do on some of my videos. Thanks for keeping it real!!!!

  11. Melodee Lucido on

    What a fun and informative video. I like how you kept it simple. I’ve read about this in the forums but your video brought it home for me. Yay!

    The back and forth of the left to right was kinda fun. Video can get soooo boring (said she with adhd).

    I’ve been looking at the 50% and 2% rules this week because my marketing brought in several possible deals for buy & hold investors. These rules are comforting in that it gives me—a newb in this area—a structure for evaluating.

    Thank you for your help!

  12. Glenn Schworm

    Good video B. Do you do your own editing? I feel like I am closing one eye, then the other, then the other and so on! it keeps me engaged. I am still waiting for the shotgun scene to come back. I am still cracking up about that one!

    • Brandon Turner

      Hey Glenn, thanks 🙂 Yeah, I do my own editing and video work. It’s one of my favorite things to do, though my little laptop yells at me every time. I think I push this little machine to it’s limits!

      And yes -I’ll have to bring the shot gun out again sometime!

  13. Hey Brandon, great video! Do you have any on vacation rentals or do you have plans to cover this in upcoming podcasts. Thanks for all you’ve done to educate the real estate community!


    • Brandon Turner

      Hey Dominique, thanks – that’s awesome to hear. Yeah, I think my expenses are probably less as well, but by using the 50% rule then I’m just happy when it turns out better, and not disappointed when that is all it does. Thanks for reading and commenting!

  14. Good video explaining the 50% Rule.

    Since hearing about this the first time on BiggerPockets however many years ago I have used this as my first screen to see if it is even close to working.
    It has actually helped me consider more deals than I was before.

    I got so conservative in my projections after my first few places that I was usually close to 60% for my non-financing expenses for places.
    The first few places I got I over estimated rents (but not that bad) and under estimated my expenses (but not that bad), which with that combination lead to a couple properties and preformed kinda bad. 🙂

    You should never buy based on something so basic and general, but it is a GREAT first screen to see where you can most productively put your efforts in evaluating further.

  15. this was great its Sunday morning,i am going to try and use this on Monday, you made it sound and look really simple. i will let you know how this works. i have no doubt that it will. it will be my very first transaction. thanks a whole lot!!

  16. Stuart Stevens on

    Using this simple formula, a ROI can be calculated by (50% * yearly income)/(cost). If the ROI is less then interest rate then a loan will reduce the ROI. In the example the income was 1600/mo and the cost was $125,000 producing an ROI of 7.68% based on 50% rule. With a loan at 5% with 20% down the ROI increases substantially to 18%. A loan at 5% interest will cost almost $5000 the first year. 50% of the yearly income (1600 * 12 / 2) is $9600/year. The yearly income is $9600 – $5000 for $4600. The cost is the $125,000 less the loan at $100,000 for a cost of $25,000. The ROI with the loan is $4600/$25,000 or 18.4%.

    The ROI does not include the principal reduction. The cash flow does include the principal reduction.

    So perhaps a rule of thumb is to make sure that the cash ROI is at least 1%(???) more than the interest rate.

  17. Stuart Stevens on

    Hmmm, I can simplify further. If your target “all cash ROI” is 7.5% then the rent has to be more than the cost divided by 80. With a 80% loan at 5% your initial ROI/year will be 17.5% when the rent is cost/80.

    The cash ROI is income/divided by cost = (rent/mo * 12 mo * 50%) / (cost). The cost to monthly rent can be calculated from the ROI — cost/rent = 6/ROI.

    (first year ROI) (loan is 20% down and 5% interest)
    Cash ROI ROI with loan (cost/monthly rent)
    4% 0% 150
    5% 5% 120
    5.5% 7.5% 109
    6% 10.0% 100 (my minimum)
    6.5% 12.5% 92
    7.0% 15.0% 86
    7.5% 17.5% 80
    ROI with loan at 5% and 20% down is 5 * cash ROI – .2
    cost/(rent/mo) = 6/(cash ROI)

    Take the current interest rate and add a minimum amount to give you the minimum amount you would accept then determine the multiplier above and make sure that rent is more than the cost divided by the multiplier. For example, at 5% interest rate and a target of at least 10% ROI with a loan, the rent has to be more than the cost divided by 100.

      • I recently looked at two duplexes with a total cost of $454,000. To get a 10% ROI, the monthly rent would have to be more than $4,540. The current and expected monthly rate is $3200. My offer would have to be around $320,000 which the seller would not have accepted. At a cost of $430,000, I calculated a ROI of around 5%. A loan would not have changed that. I passed on the properties. – Placer county, California

  18. Mehran Kamari on

    I link people to this video on a daily basis and just realized I never commented on it! Awesome video Brandon, thanks so much for making it! It really helps people get a grasp of the expenses to expect and I think it’s almost required viewing when just starting out 🙂 Keep em coming!

    • The 50% rule is meant to include EVERY expense not related to any financing you may have on the property.
      So it is meant to account for vacancy, management, taxes, insurance, utilities, maintenance, repairs, accounting, legal, reserves for CapEx etc.

      The thing about CapEx is important. If your expenses are really at 50% typically in years you are NOT doing capital improvements then you should be using an even higher factor since the idea is it smooth’s out over time. So you do better most years and then you replace a roof…

  19. Brandon,

    Great breakdown, even for a person that wasn’t aware of the 50% rule beforehand.

    Btw, anyone ever noted that your profile picture looks similar to that of Morgan Spurlock? Certainly not a bad thing, just something I noticed. Thanks for all the great consistent advice!

  20. Hi Brandon, I am completely new to this and so I have been paying close attention. My husband and I would like to buy a 4 plex in Montana. The seller is asking $185K, we have to put 25% down and interest rates will be at least 5.25. Even if we offer 160K (25K) less than the asking price we cannot reach your 50% rule and earn $100 per month per unit. Each unit only rents for $440.00 per month. Is this something we need to walk away from? In MT property is high but wages (rent) is low.

    • Brandon Turner

      Hey Pamela,

      Personally, yeah I’d say that isn’t a great deal. Using the 50% rule, $1760 total income would leave $880 to pay the mortgage, and the mortgage on $120k (160x.75) is $662.64
      , so you could reasonable expect perhaps $218.00 per month, which equates to a 6.5% return on investment. You could do better in the stock market and not get your hands dirty! 🙂 Granted, there may be other situations here, like if the tenants all pay their own water/sewer/garbage, or if taxes are super low, or if appreciation is looking really promising. But this doesn’t seem amazing to me. Hope that helps some!

      • Thank you SO Much for your reply! I appreciate it so much. The place has low taxes but it does need a fair amount of work – mostly cosmetic and code stuff. It needs some flooring, smoke detectors, proper drains for hot water… and perhaps a roof – there is snow on it now so hard to tell. My husband thinks 30- 40k would easily get it up to where it needs to be. He is very capable. We are wondering if we got it for 110K maximum if that would be a good investment.

  21. Hi Brandon. I am currently looking at possibly investing in multi-units. I have some other property that will be closing escrow at the end of this month and would like to put some of that money in a property that will provide an income as well as holding value investment -wise. I would be managing them myself. There are limited options on the market in this area but I have honed in on a couple.
    First one is an 8 plex new construction. It’s located close to a very popular shopping locale but butts up to a neighborhood that’s not so great. However, I think it would always get renters just because of its overall location. They are 1230sq ft 3/2 prob get 1100-1150 rent. I think I can get into that property for 1,050,000.
    Second is 14 units located directly across the street from the University. The property has been completely renovated, top to bottom, inside out. Everything is new and re-done. It’s about 75% rented. Still in process of filling vacancies since the renovation was done. At this time they only have a couple of the units rented by students, but I’m thinking in the future, considering it’s location, that will be who will be renting. There are 9 – 2/1 and 5 – 1/1. Income is projected to be about 112,500 per year. The most I’d pay for this property is 1,100,000 but I know I won’t get it any lower than that.
    I have 700K to put in cash and will need to carry a loan on the rest. Besides any overall advice or insights you could offer, one of my main questions is – what are your thoughts about going new construction and the con of having to wait so long before it would start producing any income? And about the con of owning near the University and having to deal with renting to students? Both properties would be relative low maintenance as the one is brand new construction and the other has been completely renovated.
    Or….should I just walk away from both of these properties and keep looking?

  22. Brandon,

    Great video. Thanks for the info. I am looking into getting started investing in multi-family units and have a goal of a positive cash flow of $100 per door. After watching your video I am questioning the definition of a door now. Per your example of 123 Main Street in this video it is a triplex that will cash flow $264 for all three units per month, that would be only $88 per unit. Would you pass on this deal? Thanks for the clarification and help.

    Brandon V.

    • Brandon Turner

      Hey Brandon,
      Thanks! Yeah, if it’s only getting me $264 total for 3 units – yep, I’d pass. Granted, there may be other reasons why someone might want to buy it (like, if the tenants pay their own Water/Sewer/Garbage, or if the market is heating up and I thought prices were going to rise a lot.)

      Hope that helPS!

  23. Brian Fredrickson on


    I wanted to find out what do you use for a single family home to weed out the bad and get the ones that you want to dive into and see if the numbers work?

    I have seen a ton on multifamily units but no rule’s of thumb for single family.
    Brian Fredrickson

    • Brandon Turner

      Hey Brian,

      Typically, I don’t buy a lot of Single Family unless it just happens to fall into my lap. However, I filter first for location – there are only a few locations I want to own a long term single family house in – and then I look for size – 3 bedroom or 4 bedroom. Then I look for the rent vs. purchase price, and look for anything greater than the 1.5% rule – like would a home for $100,000 rent for at least $1500 per month? I won’t go any lower than that, typically, on a single family house anymore.

      Hope that helps!

  24. Brandon,

    The 50% rule excludes mortgage/financing payments.

    So, then, you are excluding Insurance and Taxes from the “50%” portion. Instead, they are going in the financing (below operating expenses) analysis.

    Is that correct?

      • Yes, very helpful.

        One follow-up question: you often mention wanting $100/door on properties. I assume that is without accounting for the tax reduction via depreciation. (When I include reduction in my taxes via paper loss of depreciation, it’s much easier to get to $100/door cashflow/month.)

        Am I correct in assuming that you want ~$100/door/month *before* accounting for the effect of taxes?

  25. Hi. My name is Max. I’m new to RE investing. Thanks for video on 50% rule. I recently came across a 6 unit complex here in TX. Rural. Trying to do an analysis to determine whether to move forward with an offer or walk away. What should I be looking for?

  26. Wow! Thank you so much for explaining the 50%
    Rule. I just found this site…and I am on the first step of wanting to create passive income …educating myself…and will execute a plan of action by November.

  27. Why are expenses a function of the cost of the property at all? For instance, take 2 multifamilys, one brand new and one run down. I would think rent would be lower and expenses would be higher on the older property (…and it would have a lower purchase price).

  28. Haha, I liked the blooper reel, too. Nice.

    Brandon, where does property management come into the equation? In a few of the podcasts, you and Josh have mentioned that people tend to leave out management expenses, and that it’s smart to budget for it even if you intend to do it yourself (so you can later scale up and hire somebody). It’s already lumped into the 50% rule, right? I think in show 40 you said to budget about 12% for property management. I assume that’s for later in the process, when you’re working up a more detailed budget, right?

    This is the sort of question I am embarrassed to ask since I have a day job in real estate, but that’s silly. I don’t have the same team and systems in place that an established company does, so why should I think I can make the same financial assumptions I would make at work?

  29. Eric Walters

    Hey man, great video. Very concise. You’ve been very helpful in my learning about real estate investment. You’re obviously very experienced so I was hoping you could maybe respond to my forum post asking for advice. No big deal if you can’t but I would love to take some of your free time off your hands.

    If you do feel like it it’s here:

    either way, thanks for the help!

  30. Great video Brandon. I love the 50% rule…in my experience it’s always better to run conservative numbers to protect you from unknown risks. I just bought my first duplex and I wanted to thank you for sharing your thoughts on real estate investing because they’ve helped me in my own analysis of potential rental properties.

  31. I think this is a good rule of thumb, however I think your property example is not very realistic. And honestly I don’t know of a property now (at least in my area) where you could get this.

    So another good rule of thumb is that if Gross Rents are equal to or greater than 1% of the purchase price, the property is a no-brainer for purchase. i.e. if you have a property listed at $200,000 and it’s bringing in $2,000+ in gross rents, it’s a no brainer to purchase that property. (Obviously do all your due diligence on the property before purchasing, but in general that will work out to true every time) In your example the property is listed at $125,000 but the gross rents are $1,600!!! That means at a minimum that property should be selling for $160,000+ When you take the property up to $160,000 and do the 50% rule on it, it’s not quite as swanky.

    Also, I’m assuming you’re including your property taxes and insurance in the 50% expense category as typically those will be lumped in with your mortgage payment, but your example left those out of the mortgage payment.

  32. Jayson Tarantino on

    Does this rule still apply for owner occupied multi family homes? If not, is there a good rule for owner occupied?

    I am in the middle of purchasing a 3-unit and plan on moving into one of the units. Obviously the rental income will be reduced by 1/3, but I am more referring to the mortgage payment. I plan on using FHA financing at only 3.5% down meaning my payment will be much higher than if I put 20% down, but will allow more cash in my pocket. Do you have any tips or advice for this scenario?

  33. I am also considering a multifamily and occupy a unit. Our single family market is crazy hot right now but multi families are reasonable. Need to move due to mold issues and hoping this would be a better investment. Sit it out in the multifamily until market calms down to realistic levels.

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