The 50% rule is a shortcut for estimating what a rental costs to run. It assumes about half of the rent goes to vacancy and operating expenses: property taxes, insurance, repairs, management and, in many versions, savings for big replacements. The mortgage payment is not part of that half.
Estimated cash flow = (monthly rent × 50%) minus monthly principal and interest
Say a duplex rents for $2,000 a month. The rule sets aside $1,000 for expenses, which leaves an estimated $1,000 of net operating income. If principal and interest come to $850 a month, the estimated cash flow is $150 a month, or $1,800 a year, before income taxes.
A common mistake is subtracting the wrong mortgage number. Taxes and insurance are already inside the 50%, so subtract only principal and interest. If you subtract a full PITI payment, you count taxes and insurance twice and a decent deal looks bad.
The rule is also only a rough average. A newer house where tenants pay their own utilities often costs less than half the rent to run. An older building where the owner pays for heat and water can cost more. Use the 50% rule to screen deals, then swap in the actual tax bill, an insurance quote, and realistic repair and vacancy numbers before you commit.