The 8/16 Rule: A Simple Guide to Smarter Rental Property Investments

In real estate investing, complexity is often the enemy of action. That's where the 8/16 Rule comes in—an easy-to-use framework that separates profitable rental properties from cash flow disasters.

Whether you're an investor crunching numbers or a renter debating your next move, this rule can save time and money.

What is the 8/16 Rule?

The 8/16 Rule compares a property’s purchase price to its gross annual rent.

It gives investors a quick way to estimate cash flow potential without diving into spreadsheet hell.

• 8x Annual Rent: The lower end of the range. Properties at this price point offer strong cash flow and enough income to cover expenses like mortgage payments, taxes, and maintenance.
• 16x Annual Rent: The upper end of the range. Cash flow is tighter here, but manageable with careful planning.

Anything outside this range? Not worth your time.

Looking for markets where the 8/16 Rule actually works? Breaking Bank did the heavy lifting for you.

We analyzed 21 Canadian cities to uncover where investors can still achieve positive cash flow. Click here to access the report and save yourself hours of research.

Why 8% Unrecoverable Costs Matter

For renters deciding whether to buy, the 8% Rule simplifies the math. Here’s the thinking:

• Homeownership comes with unrecoverable costs—expenses you can’t get back. These include for:
  • 1% for property taxes (est.)
  • 1% for maintenance (est.)
  • 4%-6% for borrowing costs (mortgage interest).

Together, this totals 6%-8% annually. Since mortgage rates fluctuate, the 8% upper threshold errs on the side of caution, ensuring investors don’t underestimate ownership costs.

Let’s Look at the Numbers

For Investors

Take a property with $3,000 in monthly rent (or $36,000 annually):

• 8x Annual Rent: The sweet spot starts at $288,000.
• 16x Annual Rent: The upper limit is $576,000.

Any property priced between $288,000 and $576,000 has solid investment potential. Below $288,000? That’s a steal. Above $576,000? Move on.

For Renters vs. Buyers

Let’s say you’re eyeing a $700,000 home:

• Annual unrecoverable costs at 8% = $56,000
• Monthly unrecoverable costs = $4,666/month

If your rent is above $4,666, buying could make sense. If it’s below, renting may keep more money in your pocket.

The 8% threshold is conservative but practical. With mortgage rates ranging from 4%-6%, it’s wise to assume the higher end of the range for cautious decision-making.

Where to Find 8/16-Friendly Markets

Finding properties that align with the 8/16 Rule isn’t always easy, especially in Canada’s red-hot real estate markets. That’s why Breaking Bank put together an in-depth analysis of markets across Canada—comparing average home prices with local rental rates to identify cities where investors can still achieve positive cash flow.

Click here to unlock this in-depth report of 21 Canadian cities. This list could save you hours of research and point you toward some of Canada’s best-kept cash flow secrets.

Why It Works

The 8/16 Rule cuts through the noise. For investors, it focuses on realistic purchase price ranges. For renters, it provides a clear benchmark to decide whether to keep renting or take the plunge into homeownership.

With rates fluctuating and markets shifting, this simple rule keeps decision-making grounded. Whether you’re analyzing cash flow or debating a move, the 8/16 Rule ensures you stay on the right side of the numbers.

Breaking Bank's Take: Real estate decisions don’t need to be complicated. Stick to the 8/16 Rule, and you’ll avoid overpaying, protect your cash flow, and make smarter moves in any market.