How to Hit Your Rental Income Goals Using the 125% Rule

How to Hit Your Rental Income Goals Using the 125% Rule

If you’re a new real estate investor, one of the most important goals is to generate steady monthly cash flow—often around $500 or more. But how do you determine whether a property can realistically get you there?

Let me introduce you to a simple but powerful tool: the 125% Rule.

What’s the 125% Rule?

A solid investment property typically rents for at least 125% of your total monthly mortgage payment, including taxes, insurance, and other operating expenses. This rule provides a financial cushion, ensuring that your loan is covered while still producing a profit.

A Practical Example

Let’s say your goal is to earn $500 in positive cash flow each month. Based on the 125% rule, here’s how the numbers might look:

• Monthly mortgage and expenses: $1,500

• Target monthly rent: $2,000

• Estimated cash flow: $500

I recently prepared a spreadsheet for an investor to demonstrate how adjusting a few key numbers can make all the difference. That adjustment helped put the investor in a better position to achieve their cash flow goal—without overextending themselves financially.

Tools to Help You Succeed

To make these evaluations easier, I’ve created user-friendly spreadsheets and tools that allow me to help you make smarter decisions on your investment property. These tools are designed to help new investors like you gain confidence in the numbers before moving forward.

If you’d like help running a scenario, don’t hesitate to reach out. I'm here to help you find the right property and reach your investment goals.