One Percent Rule
A quick screening rule stating that a rental property should generate monthly rent equal to at least 1% of its purchase price.
Definition
The 1% rule is a back of envelope screen, nothing more. It says that if a property costs $150,000, it should rent for at least $1,500 per month. If it does, the deal is worth a closer look. If it does not, the deal probably does not cash flow and you can skip it. The rule became popular because it is fast. You see a listing, you do the math in your head, you decide in 5 seconds whether to investigate. That is the entire value of the rule. It does not account for taxes, insurance, maintenance, vacancy, or debt service. It does not tell you whether the deal is actually good. In high appreciation coastal markets, 1% is almost impossible to hit and investors there are betting on equity growth instead of cash flow. In the Midwest and Southeast landlord friendly markets, 1% is achievable and 1.25% or higher starts to feel strong. For BRRRR deals, the real number to watch is not the 1% rule at purchase but the 1% rule at ARV, because that is the basis you are refinancing into.
Formula
Example
A property costs $140,000 and rents for $1,450. Monthly rent / purchase price = 1,450 / 140,000 = 1.04%. Passes the 1% rule.
Frequently asked
Does the 1% rule still work in 2026?
Yes in landlord friendly Midwest and Southeast markets. No in most coastal and high appreciation markets where investors bet on equity growth instead of cash flow.
Is the 1% rule enough to evaluate a deal?
No. It is a screening tool. Always follow up with full underwriting including NOI, cash on cash, and IDEAL scoring.
What if a deal is below 1% but still cash flows?
Possible if operating expenses are unusually low or debt is unusually cheap. But these deals are rare, so verify the numbers carefully.
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