Rent should be 1.8x the mortgage? What that rule misses, run on a real-sized deal
A fixed rent-to-mortgage ratio can't tell you whether a rental cash flows, because it ignores vacancy, management, repairs, capex, taxes and insurance. In our engine run, an $82,000 house renting at 1.8 times principal and interest lost $169.58 a month, and it needed about 2.35 times just to break even. Subtract every expense line instead.
You've probably seen a version of this rule. "If the rent is at least 1.8 times the mortgage, you'll clear a few hundred a month." Sometimes it's 1.5, sometimes 2. It's popular because it's fast, and fast matters when you're scrolling through forty listings on a Tuesday night.
The trouble is what the word "mortgage" hides from you. Usually it means principal and interest, the number your lender quotes. But your tenant's rent has to pay for much more than the loan.
So we took one modest house and ran it through the BuyBox calculation engine at exactly 1.8 times the payment. Then we ran it at the rent it actually gets. The gap between those two answers is the whole point of this post.
The example house
| Input | Value |
|---|---|
| Purchase price | $82,000 |
| Loan | 20% down, $65,600 at 7.75%, 30 years |
| Principal and interest | $469.97 a month |
| Property taxes | $150 a month |
| Insurance | $110 a month |
| Vacancy / management / repairs / capex | 8% / 10% / 10% / 8% (an older house) |
| Cash to close (down payment plus 3% costs) | $18,860 |
Your budget lines might differ. Ours are on the cautious side on purpose. An older house at this price usually needs more repair money, not less, and a property manager in a lower-rent area often charges a higher percentage. If yours is newer, keep reading; we ran that version too.
At 1.8x the payment, it loses money
1.8 times $469.97 is $846 a month in rent. Here's what the engine shows you at that rent:
- Monthly cash flow: −$169.58
- DSCR (net operating income ÷ loan payments): 0.77
- Same house with newer-house budgets (6% vacancy, 8% management, 5% repairs, 5% capex): −$77.87 a month
Not a few hundred a month in your pocket. A few hundred a month OUT of it, every month, before anything goes wrong. Can you see why the rule felt right, though? $846 minus $470 leaves $376. That's the number the rule is quietly picturing. It's just not money you keep, because your tenant's rent also has to cover vacancy, management, repairs, capex, taxes and insurance.
At the real rent, the margin is thinner than it looks
Now the good news. This house actually rents for $1,150. That's about 2.45 times the principal and interest, way past the rule. Surely that's a great deal?
Here's where every dollar of your $1,150 goes, monthly, from the engine run:
| Line | Monthly |
|---|---|
| Rent | $1,150.00 |
| Vacancy (8%) | −$92.00 |
| Management (10%) | −$105.80 |
| Repairs (10%) | −$105.80 |
| Property taxes | −$150.00 |
| Insurance | −$110.00 |
| Capex reserve (8%) | −$84.64 |
| Principal and interest | −$469.97 |
| Cash flow | $31.79 |
Thirty-two dollars a month. On $18,860 of your cash, that's a cash-on-cash return of about 2%. The rent is nearly two and a half times the payment, and one water heater wipes out a year of profit!
Change the assumptions and the picture moves a lot. With newer-house budgets, the same $1,150 produces $156.45 a month. Manage it yourself (and keep the older-house budgets) and it's $137.59. So the ratio didn't tell you much at all. Your expense assumptions did. Get those right and you can ignore the multiple!
What ratio did this house actually need?
We stepped the rent up in $5 increments to find two thresholds, using the older-house budgets:
| Goal | Rent needed | Rent ÷ principal and interest |
|---|---|---|
| Break even (cash flow $0 or better) | $1,105 | 2.35x |
| $200 a month cash flow | $1,405 | 2.99x |
Nearly 3x your payment, just to clear $200 a month. That isn't because this house is special. It's because on a cheap house, taxes, insurance and the percentage-based costs are big compared to a small loan payment. The ratio you need goes UP as the price goes down. A single rule can't capture that, which is why any fixed multiple will be too loose on some houses and too strict on others.
Why payment ratios keep fooling smart investors
- "Mortgage" means different things. Principal and interest alone, or with taxes and insurance? On this house the two ratios are 2.45x and 1.58x for the same rent.
- The ratio ignores the percentage costs. Vacancy, management, repairs and capex scale with rent, not with the loan, so the rule can't see them.
- It hides your down payment. A bigger down payment makes your ratio look better, but it also ties up MORE of your cash. Cash-on-cash return tells you whether that trade is worth it.
Ratios like this one, the 1% rule and the 50% rule are fine for sorting listings into "look closer" and "skip." They just can't tell you what a house will put in your pocket. For that, you need every line, and you need your own numbers in them.
A better five-minute check
- Use your real taxes from the county, and an actual insurance quote for your policy.
- Pick vacancy, management, repairs and capex percentages that fit the house's age and the area.
- Subtract all of them, plus principal and interest, from the rent.
- Divide what's left (times 12) by your cash in. That's your cash-on-cash, and it's the ONE number worth writing on the listing sheet.
- Ask what rent breaks even for you. If it's close to market rent, you have no cushion.
Where BuyBox fits
BuyBox runs this exact breakdown for every deal you enter. Each expense line is an input you can see and change, and your cash flow, DSCR and cash-on-cash come from them, so you can test an older-house budget against a newer one in seconds. We'd rather you see a $32 month on the screen than discover it after closing.
Frequently asked
Is there a rent-to-mortgage ratio that always works?
No. The ratio a house needs depends on its price, taxes, insurance, age and how you manage it. On our example it took about 2.35x principal and interest just to break even. A pricier house with lower taxes might need far less.
What about Section 8 or other programs that pay higher rents?
A higher rent helps every line in this post, but the costs still apply: vacancy between tenants, inspections and repairs, management, taxes and insurance. Run the program's rent through the same full breakdown instead of a payment multiple.
How is this different from DSCR?
DSCR divides net operating income by the loan payment, so it subtracts operating costs first. A simple rent-to-payment ratio doesn't. See our DSCR guide for how lenders and investors use it, and NOI vs cash flow for why the two numbers differ.
This post is education, not investment, tax or legal advice. Every figure comes from the worked example above; your taxes, insurance, rent and loan terms will differ.