> ## Content Index > Fetch the complete content index at: https://landlordsheet.com/llms.txt > Use this file to discover other available public pages before exploring further. # How to Calculate the 1% Rule (And Why It's Only a First Filter) - URL: https://landlordsheet.com/how-to-calculate-the-1-percent-rule/ - Published: 2026-10-16T21:37:39.000Z - Updated: 2026-10-17T14:15:30.000Z - Description: The 1% rule in one line of math, worked examples, the rehab adjustment, and why a deal that passes still needs a full analysis. - Author: Jon - Tags: Deal Analysis, Investing The **1% rule** is one of the most-quoted shortcuts in rental investing. It's a quick way to screen listings before you spend an hour on a full analysis. It's also often misunderstood, sometimes treated as a buy signal when it's really just a sorting tool. Here's how to calculate it, how to adjust it for rehab, and what to do next whether a deal passes or fails. ## The 1% rule in one sentence **A property "passes" the 1% rule if its monthly rent is at least 1% of its purchase price.** > 1% ratio = monthly rent ÷ purchase price If the result is 0.01 (1%) or higher, it passes. ## Worked examples (hypothetical numbers) **Example 1: passes** \- Purchase price: $180,000 - Expected rent: $1,900/month - Ratio: $1,900 ÷ $180,000 = **1.06%**. Passes. **Example 2: fails** \- Purchase price: $350,000 - Expected rent: $2,400/month - Ratio: $2,400 ÷ $350,000 = **0.69%**. Fails. **Quick mental version:** move the decimal point two places left on the price. A $250,000 house needs about $2,500/month in rent to hit 1%. ## Including rehab costs If a property needs work, the more honest version uses your **all-in cost**: > 1% ratio = monthly rent ÷ (purchase price + rehab cost) Example: a $150,000 house needing $30,000 of work, renting for $1,800 after rehab. - Price only: $1,800 ÷ $150,000 = 1.2% - All-in: $1,800 ÷ $180,000 = **1.0%** The rehab version is the one that reflects your actual money at work. See [BRRRR calculation](https://landlordsheet.com/brrrr-calculation/) for the full rehab math. ## For multi-unit properties Use **total monthly rent from all units** against the total price. A fourplex at $400,000 with four units at $1,050 each: - $4,200 ÷ $400,000 = **1.05%** ## What the 1% rule tells you It's a rough proxy for **how much rent the property produces relative to its price**. Higher ratios generally leave more room for expenses and the mortgage. It lets you: - Sort a long list of listings quickly - Spot listings priced high relative to their rent - Compare properties of different prices on one simple number ## What it doesn't tell you The 1% rule ignores almost everything that actually decides whether a rental makes money: - **Property taxes**, which vary enormously by location - **Insurance** costs - **Interest rate** and loan terms - **Condition**, and therefore repairs and CapEx - **Vacancy** in that specific market - **HOA dues** - **Who pays utilities** - **Management** - **Appreciation potential, neighborhood quality and tenant demand** Two properties with the same 1% ratio can have very different cash flow. A high-tax, older property can pass the 1% rule and still lose money. A newer property in a low-tax area can miss it and cash-flow fine. ## Two properties that both pass, with very different results (hypothetical) Here's why passing isn't enough. Two $150,000 properties, each bought with 25% down and a $112,500 loan at 7% for 30 years (about **$748/month** principal and interest): | | Property A | Property B | | -------------------------------- | ------------------------ | -------------- | | Rent | $1,600 (1.07%) | $1,550 (1.03%) | | Property tax | $4,800/yr | $1,800/yr | | Insurance | $1,800/yr | $1,100/yr | | Age/condition | Older, needs more upkeep | Newer | | Vacancy + repairs + CapEx + mgmt | 29% of rent | 23% of rent | | Operating expenses | ≈ $1,014/mo | ≈ $598/mo | | NOI | ≈ $586/mo | ≈ $952/mo | | **Cash flow** | **≈ −$162/mo** | **≈ +$203/mo** | Property A has the *better* 1% ratio and loses money every month. Property B barely passes and cash-flows comfortably. Taxes, insurance and condition made the difference, and the 1% rule sees none of them. ## Is the 1% rule realistic everywhere? Not in every market. In many higher-priced areas, very few properties reach 1%. Investors there often rely more on appreciation, a larger down payment or other strategies. Some investors use a lower threshold for screening in those markets. That doesn't make the rule wrong or right; it's a filter, and you choose where to set it. The important point: **use the 1% rule to decide what to analyze, not what to buy.** ## What to do after the 1% check If a property passes (or comes close), run the full numbers: 1. **Monthly payment** with a real rate quote 2. **Operating expenses:** taxes, insurance, vacancy, repairs, CapEx, management, utilities, HOA 3. **NOI** \= rent − operating expenses 4. **Cash flow** \= NOI − loan payment 5. **Cash-on-cash return** \= annual cash flow ÷ cash invested 6. **Cap rate** \= annual NOI ÷ price 7. **DSCR** \= NOI ÷ debt service Try the free [cash-on-cash return calculator](https://landlordsheet.com/cash-on-cash-return-calculator/) and the free [cap rate calculator](https://landlordsheet.com/cap-rate-calculator/) for a quick pass, and read [how to calculate cash-on-cash return](https://landlordsheet.com/how-to-calculate-cash-on-cash-return/) and [how to calculate cap rate](https://landlordsheet.com/how-to-calculate-cap-rate/) for the details. See it applied each week in [Deal of the Week](https://landlordsheet.com/deal-of-the-week/). ## Where to find a realistic rent number The 1% check is only as good as the rent you plug in. Avoid using the seller's "projected" rent or the highest listing you can find. Better sources: - **Current leases and rent rolls**, if the property is already rented (ask for copies, not a summary) - **Comparable listings** nearby with similar size, condition and amenities, especially ones that actually rented quickly - **Local property managers**, who often know achievable rents well - **Your own experience** in the area If you're unsure, run the ratio at a conservative rent and an optimistic one. If the deal only passes at the optimistic number, treat it as a fail. ## Related rules of thumb - **The 50% rule:** a quick assumption that operating expenses (excluding the mortgage) run about half of rent. It's a screening assumption, not a fact about any specific property. Your real expenses could be higher or lower. - **The 2% rule:** a stricter version of the 1% rule that very few properties meet in most markets. - **Gross rent multiplier (GRM)** \= price ÷ annual rent. It's the 1% rule seen from the other side. A 1% property has a GRM of about 8.3. All of these are shortcuts. None replace a line-by-line analysis. ## Run the full analysis in a spreadsheet The [Rental Deal Analyzer ($19)](https://payhip.com/b/vNzcd?ref=landlordsheet.com) shows the 1% ratio alongside cash flow, cap rate, cash-on-cash, DSCR, a five-year projection and a deal score against targets you set. Rehabbing? The [BRRRR & Flip Analyzer ($24)](https://payhip.com/b/oAm5E?ref=landlordsheet.com) uses all-in cost. Both are in the [Investor Pack ($39)](https://payhip.com/b/CGreg?ref=landlordsheet.com). House hacking instead? Try the [House Hack Calculator ($19)](https://payhip.com/b/7Wz9e?ref=landlordsheet.com). ## Quick checklist - \[ \] Monthly rent ÷ price (or price + rehab) - \[ \] Passes your threshold? Run the full numbers. - \[ \] Check taxes, insurance and rates for that specific property - \[ \] Stress-test: lower rent, higher rate, a big repair in year one Want one practical landlord tactic each week? [Subscribe free](#/portal/signup). --- *This article is for general educational purposes and is not financial or investment advice. Example figures are hypothetical. — Jon, Everyone's Landlord*