1% Rule: worked example
| Purchase price | $300,000 |
|---|---|
| Monthly rent | $2,800 |
| Rent as a share of price | 0.933% |
| Rent needed to meet 1 percent | $3,000 |
| Shortfall against 1 percent | $200 |
1% Rule: formula
Common error: Treating a fail as a rejection in an expensive market. Few properties in high-priced areas meet 1 percent, and the rule was built for cheaper ones.
Purchase price is the price you would pay, including any renovation you must do before renting, and monthly rent is the rent you can realistically charge, from comparable listings. The rule says monthly rent should be at least 1% of the purchase price, so a $300,000 property should rent for $3,000. Include repair costs in the price if the home needs work, since the rent applies to the finished property.
1% Rule: changing Purchase price
| Purchase price | Rent as a share of price | Rent needed to meet 1 percent | Shortfall against 1 percent |
|---|---|---|---|
| $240,000 | 1.2% | $2,400 | $0.00 |
| $270,000 | 1.0% | $2,700 | $0.00 |
| $300,000 (example) | 0.933% | $3,000 | $200 |
| $330,000 | 0.848% | $3,300 | $500 |
| $360,000 | 0.778% | $3,600 | $800 |
1% Rule: compare input ranges
| Input | Tested from | To | Rent as a share of price: low input | Rent as a share of price: high input | Swing |
|---|---|---|---|---|---|
| Monthly rent | $2,520 | $3,080 | 0.840% | 1.0% | 0.187% (20%) |
| Purchase price | $270,000 | $330,000 | 1.0% | 0.848% | 0.189% (20%) |
1% Rule: individual input comparisons
| Input | Value | Rent as a share of price | Rent needed to meet 1 percent | Shortfall against 1 percent |
|---|---|---|---|---|
| Purchase price | $240,000 | 1.2% | $2,400 | $0.00 |
| $270,000 | 1.0% | $2,700 | $0.00 | |
| $300,000 | 0.933% | $3,000 | $200 | |
| $330,000 | 0.848% | $3,300 | $500 | |
| $360,000 | 0.778% | $3,600 | $800 | |
| Monthly rent | $2,240 | 0.747% | $3,000 | $760 |
| $2,520 | 0.840% | $3,000 | $480 | |
| $2,800 | 0.933% | $3,000 | $200 | |
| $3,080 | 1.0% | $3,000 | $0.00 | |
| $3,360 | 1.1% | $3,000 | $0.00 |
1% Rule: combined input changes
| Purchase price / Monthly rent | $2,240 | $2,800 | $3,360 |
|---|---|---|---|
| $240,000 | 0.933% | 1.2% | 1.4% |
| $270,000 | 0.830% | 1.0% | 1.2% |
| $300,000 | 0.747% | 0.933% | 1.1% |
| $330,000 | 0.679% | 0.848% | 1.0% |
| $360,000 | 0.622% | 0.778% | 0.933% |
1% Rule: which assumptions move the result?
1% Rule: values and definitions
| Quantity and definition | Value used |
|---|---|
| Purchase price | $300,000 |
| Monthly rent | $2,800 |
| Rent as a share of price | 0.933% |
| Rent needed to meet 1 percent | $3,000 |
| Shortfall against 1 percent | $200 |
1% Rule: half and double Monthly rent
| Monthly rent | Rent as a share of price |
|---|---|
| $1,400 | 0.467% |
| $2,800 | 0.933% |
| $5,600 | 1.9% |
The rule ignores expenses, taxes, insurance, vacancy and financing, so a property that meets it can still lose money in a high-tax or high-repair area. Interest rates change the picture: at higher mortgage rates, 1% may not be enough. Appreciation-driven markets often have lower ratios and rely on price growth, which is riskier.
Real Estate Investing calculators: Land Acreage Calculator, Cap Rate Calculator, Cash-on-Cash Return Calculator, Rental Cash Flow Calculator, Net Operating Income (NOI) Calculator, DSCR Calculator.
The 1 percent rule is a quick screen: monthly rent should be at least 1 percent of the purchase price. A $300,000 property needs $3,000 a month to pass, and $2,800 falls short by $200, at about 0.93 percent. The rule is a filter, not a verdict.
It says nothing of taxes, insurance, repairs or vacancy, and it favors cheaper markets where rents run high against prices.
An assumed $200,000 property with $2,000 monthly rent meets the one-percent screen. If monthly operating expenses are $900 and debt service is $1,300, the resulting cash flow is negative $200 before any omitted items. Passing the rent-price screen establishes no expense budget.
Actual vacancy, repairs, taxes, insurance and financing determine the separate cash-flow calculation.
Analyze the deal properly with the cap rate, NOI and cash flow calculators, and compare with the gross rent multiplier and rental yield pages. The DSCR calculator tests loan coverage. Use the rule as a filter, not a decision.
What is the 1% rule?
A guideline that a rental's monthly rent should be at least 1% of its purchase price, for example $2,000 a month on a $200,000 property.
Does a property that fails the 1% rule make a bad investment?
Not necessarily. It may still work through appreciation or low expenses, but its cash flow will be thinner and needs a closer look.
Why is the 1% rule hard to meet now?
Prices rose faster than rents in many markets, so fewer properties reach it, particularly at today's mortgage rates.