What Is 1% Rule?
The 1% rule's a screening tool: monthly rent ≥ 1% of purchase price. $200,000 property? You need $2,000/month rent to pass. Flip it: $1,850 rent × 100 = $185,000 max price. Ten-second filter. Works in cash-flow markets — Memphis, Cleveland. San Francisco? NYC? You won't find 1% there. Use it to kill obvious losers. Then run real numbers with NOI, cap rate, and cash flow.
Monthly rent should hit at least 1% of what you paid. That's the 1% rule. A $185,000 house? $1,850/month or more. Quick screen — not a full analysis.
At a Glance
- Formula: Monthly Rent ≥ 1% × (Purchase Price + Repairs)
- Reverse: Max Price = 100 × Monthly Rent
- Works best in Midwest and Southern cash-flow markets
- Fails in expensive coastal markets (0.4–0.6% typical)
- Ignores taxes, insurance, vacancy, financing — use as a filter only
- Most U.S. markets today: 0.5% rent-to-price is common, not 1%
Monthly Rent ≥ 1% × Purchase Price
How It Works
The math. Take purchase price — plus any rehab. Multiply by 1%. That's your target rent. $247,000 all-in? You need $2,470/month. Flip it: $1,847/month rent. Max price = $1,847 × 100 = $184,700. Quick math.
Why it exists. The rule came from an era when rates were 3–4% and home prices hadn't outpaced rents. At 1%, rent often covered PITI (principal, interest, taxes, insurance) with room left over. Shorthand: hit 1%, you might cash-flow. Don't hit it? Probably won't. Simple.
What it ignores. Everything else. Property taxes swing wildly — $2,200/year in one county, $6,000 in another. Insurance. Maintenance. Vacancy rate. Property management (8–12% of rent). The rule doesn't touch any of that. And it ignores your financing. At 7% interest, your mortgage eats more of the rent than it did at 4%. A property that "passes" can still lose $200/month. Run the real numbers.
Where it still works. Midwest and South. Cleveland. Indianapolis. Memphis. Birmingham. Lower prices, decent rents. You'll see 0.8–1.2% rent-to-price. Off-market deals, value-add, sweat equity — that's where 1% shows up. Use it as a first filter there.
Where it dies. San Francisco. A $1.2M home would need $12,000/month rent to hit 1%. Average rent's around $3,500. 0.29%. NYC, Boston, San Jose — same story. Expensive markets run 0.4–0.6%. Don't chase 1% there. You won't find it.
Real-World Example
Memphis duplex. 2-unit for $178,000. Each side rents for $950. Gross: $1,900/month. $1,900 ÷ $178,000 = 1.07%. Passes.
Now the real numbers. Property taxes: $2,100/year. Insurance: $1,400. Maintenance (1% of value): $1,780. Management (10%): $2,280. Vacancy (6%): $1,368. Total: ~$8,928/year. NOI = $22,800 − $8,928 = $13,872. Mortgage on $142,400 (80% LTV) at 7.25%: ~$972/month. Cash flow: $1,156 − $972 = $184/month. It works.
San Jose single-family. $1.1M purchase. To hit 1%, you'd need $11,000/month rent. Market rent: $3,800. 0.35%. The rule says skip. And it's right — you won't find 1% in San Jose. The property might still pencil if you're betting on appreciation. The rule doesn't tell you that. It just says "doesn't meet the screen." Use it that way.
Pros & Cons
- Ten-second filter — multiply price by 0.01, compare to rent
- Catches obvious losers before you waste time on full analysis
- Works in cash-flow markets (Midwest, South) as a discipline tool
- Easy to reverse: rent × 100 = max price you'd consider
- No spreadsheet — mental math in the car
- Ignores operating expenses — taxes, insurance, maintenance, vacancy, management
- Ignores financing — 7% rates change the math vs. 4%
- Unrealistic in most expensive markets — you'll rarely find 1%
- A property that passes can still lose money monthly
- Home prices have outpaced rents — 0.5% is typical now, not 1%
Watch Out
Don't use it as a buy signal. Passing the 1% rule doesn't mean the deal works. Run NOI, cap rate, cash flow, and cash-on-cash return. The rule eliminates. It doesn't approve.
Don't chase 1% in the wrong markets. If you're in Austin or Denver and every listing fails the screen, that's the market talking. Either look elsewhere (Memphis, Cleveland) or use different metrics. DSCR, cap rate, and total return matter more in appreciation markets.
Include repairs in the price. The rule uses purchase price plus what you're putting in. $165,000 purchase + $22,000 rehab = $187,000. You need $1,870/month rent. Forgetting the rehab inflates your target rent.
The 2% rule is stricter. Some investors use 2% — monthly rent = 2% of price. $200,000 → $4,000/month. Harder to find. Both rules are screening tools. Neither replaces real analysis.
Ask an Investor
The Takeaway
The 1% rule is a 10-second filter: monthly rent should be at least 1% of purchase price. Use it to kill bad deals fast — especially in cash-flow markets where it still applies. But it ignores taxes, insurance, vacancy, and financing. A property that passes can still bleed. Run the full numbers with NOI and cash flow before you buy. In expensive markets, forget 1% — you won't find it. Use cap rate and DSCR instead.