How to Calculate the 1% Rule (And Why It's Only a First Filter)

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 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 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 and the free cap rate calculator for a quick pass, and read how to calculate cash-on-cash return and how to calculate cap rate for the details. See it applied each week in 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) 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) uses all-in cost. Both are in the Investor Pack ($39). House hacking instead? Try the House Hack Calculator ($19).

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

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This article is for general educational purposes and is not financial or investment advice. Example figures are hypothetical. — Jon, Everyone's Landlord