What is 1% Rule?
The 1% rule is the fastest first-pass screen in rental investing: monthly rent should be at least 1% of the total purchase price (including rehab). A $200,000 property should rent for about $2,000/month.
It won't tell you if a deal is good — but it tells you in seconds whether a deal is worth a closer look, which saves hours across a pile of listings.
Formula
1% rule: Monthly rent ÷ Purchase price ≥ 1% (0.01).
How to read it
- Hitting 1%+ suggests a property has a real shot at cash flow; well under 1% usually means an appreciation play, not cash flow.
- Pricey coastal metros rarely hit 1%; Midwest and Southern cash-flow markets often exceed it.
- Passing the 1% rule is necessary, not sufficient — always follow with cash-on-cash and DSCR.
Frequently asked questions
- Is the 1% rule still realistic?
- In many expensive metros, no — few properties hit it. But in cash-flow markets it's alive and well, and it remains a useful quick filter everywhere for ranking which deals deserve a full analysis.
- What's the difference between the 1% and 2% rule?
- The 2% rule is a stricter version (rent ≥ 2% of price) that's very hard to hit in today's market — usually only in low-price, higher-risk areas. Most investors screen at 1%.