The 1% Rule in Real Estate: What It Is and How to Use It
The 1% rule is one of the first things new real estate investors learn — and one of the most misused. Used correctly, it's a fast filter that saves hours. Used as a final verdict, it can talk you into a bad deal. Here's how to use it properly.
What the 1% rule says
The rule is simple: a rental property's monthly rent should be at least 1% of its purchase price. A $200,000 property should rent for about $2,000 per month to pass. A $300,000 property should rent for roughly $3,000.
That's it. It's a back-of-the-envelope screen you can run in your head while scrolling listings.
Why it works as a screen
Properties that clear the 1% bar have a fighting chance at positive cash flow. Those far below it usually don't — the rent simply can't cover the mortgage, taxes, insurance, maintenance and vacancy once you add everything up.
The 1% rule is a screen, not a verdict. It tells you which deals are worth a full analysis — not which deals to buy.
Where the 1% rule falls short
It ignores almost everything that actually determines whether a deal works:
- Interest rates — a deal that pencils at 5% may lose money at 7.5%.
- Operating expenses — high property taxes or HOA fees can sink a property that passes the rule.
- Condition — a property needing $40,000 of work isn't comparable to a turnkey one at the same price.
- Market — appreciation, rent growth and vacancy vary wildly by location.
How to use it in practice
Run the 1% rule as your first filter. If a property clears it, move to a real analysis: cash flow after all expenses, cash-on-cash return, DSCR and a multi-year projection. If it fails badly, skip it and save your time.
The investors who win aren't the ones who memorize rules of thumb — they're the ones who quickly run the real numbers on the deals that pass the screen.
Want this done for you? The Deal Analyzer App runs every one of these numbers automatically. See it on Etsy →