The 1% rule is a fast back-of-the-envelope screen for rental property: a deal passes if the expected monthly rent is at least 1% of the purchase price (including rehab). It's a filter to decide what's worth analyzing — not a substitute for running the real numbers.
Run the full numbers →Multiply the all-in price by 1%. If the monthly rent meets or beats that figure, the deal clears the screen.
| Purchase price | 1% rule rent | 2% rule rent |
|---|---|---|
| $150,000 | $1,500/mo | $3,000/mo |
| $250,000 | $2,500/mo | $5,000/mo |
| $400,000 | $4,000/mo | $8,000/mo |
A stricter version: rent ≥ 2% of price. It's rare in most markets today and usually only appears in lower-priced areas with higher risk. Treat 2% as a "very strong cash flow" flag, not a target you should expect to hit.
A companion rule of thumb: over time, operating expenses (taxes, insurance, maintenance, vacancy, management — everything except the mortgage) tend to run about 50% of rent. So on $2,500/mo rent, budget ~$1,250 for expenses before your mortgage payment. It's a sanity check on optimistic expense estimates.
The 1% rule ignores interest rates, property taxes, insurance, HOA, vacancy, and local appreciation — all of which decide whether a deal actually cash-flows. Two properties that both pass the 1% rule can have very different returns once you account for a 7% mortgage vs. a 6% one, or $1,200 vs. $6,000 in annual taxes.