Real Estate Investing Glossary

1% Rule

Last reviewed July 15, 2026

The 1% rule is a screening guideline saying a rental’s monthly rent should be at least 1% of its purchase price to merit a closer look.

What is the 1% rule?

The 1% rule is a back-of-the-envelope screen for rental properties: monthly rent should equal at least 1% of the all-in purchase price (including upfront repairs). A $150,000 house should rent for about $1,500 a month to pass. Properties that meet the threshold are more likely, though not guaranteed, to produce positive cash flow with conventional financing.

The rule works because it compresses a full underwriting model into one ratio. At 1% rent-to-price (a 12% gross yield), typical operating expenses and a 20-25% down mortgage usually leave some cash flow. Below about 0.7%, most properties lose money monthly at normal interest rates; well above 1%, they tend to cash flow comfortably.

Treat it strictly as a filter. High-tax states, high-insurance coastal areas, older homes, and HOA fees can sink a property that passes the screen, while low-expense properties can work slightly below it. In many appreciation-driven metros almost nothing meets the 1% rule, which tells you those markets are priced for growth rather than income.

Formula

Passes the 1% rule when: monthly rent ≥ 1% × (purchase price + upfront repair costs)

Worked example

A house costs $140,000 and needs $10,000 of repairs, so the all-in basis is $150,000. One percent of $150,000 is $1,500. If market rent is $1,550 per month, the property passes the screen and is worth full underwriting; if rent is $1,200, it likely will not cash flow with normal financing.

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Frequently asked questions

Is the 1% rule still realistic?: In many major metros, no, after the price growth of the early 2020s, typical rent-to-price ratios in appreciation-oriented markets sit between 0.5% and 0.8%. Properties meeting the 1% rule still exist in parts of the Midwest and South and in small markets, usually in exchange for slower appreciation. Many investors now use the rule as a relative gauge across markets rather than a hard pass/fail.
Does passing the 1% rule guarantee positive cash flow?: No. The rule ignores property taxes, insurance, HOA dues, and interest rates, all of which vary enormously. A 1% property with $6,000 annual taxes, coastal insurance premiums, and a high-rate loan can still lose money. Passing the screen earns a property a real analysis with actual numbers, nothing more.

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What is the 1% rule?

Frequently asked questions

Is the 1% rule still realistic?

In many major metros, no, after the price growth of the early 2020s, typical rent-to-price ratios in appreciation-oriented markets sit between 0.5% and 0.8%. Properties meeting the 1% rule still exist in parts of the Midwest and South and in small markets, usually in exchange for slower appreciation. Many investors now use the rule as a relative gauge across markets rather than a hard pass/fail.

Does passing the 1% rule guarantee positive cash flow?

No. The rule ignores property taxes, insurance, HOA dues, and interest rates, all of which vary enormously. A 1% property with $6,000 annual taxes, coastal insurance premiums, and a high-rate loan can still lose money. Passing the screen earns a property a real analysis with actual numbers, nothing more.