Decision guide
The 1% Rule for Rental Property
Use the rental property 1% rule as a quick rent-to-price screen, then test cash flow, expenses, financing, and reserves before judging the deal.
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Quick Answer
The 1% Rule for Rental Property is worth reviewing before you trust a calculator result because the assumptions behind the model usually matter as much as the formula.
Key Takeaways
- Compare monthly rent with purchase price
- Verify rent with current local comparables
- Add taxes, insurance, vacancy, and repairs
- Include financing and initial cash invested
- Stress-test a lower-rent or higher-expense case
The 1% rule is a screening ratio
The 1% rule compares expected monthly rent with purchase price. A property renting for about one percent of its price meets the rule, but the ratio does not measure actual profit or account for financing and operating costs.
Local costs can overturn the shortcut
Two properties with the same rent-to-price ratio can have very different taxes, insurance, maintenance, utilities, vacancy, and management costs. Use the rule to decide what deserves a deeper model, not what deserves an offer.
Run cash flow after the quick screen
Enter the purchase price, down payment, rent, expenses, and rehab into the rental ROI calculator. Review annual cash flow and cash-on-cash return, then stress-test rent and repairs before deciding.
Checklist Before You Decide
- Compare monthly rent with purchase price
- Verify rent with current local comparables
- Add taxes, insurance, vacancy, and repairs
- Include financing and initial cash invested
- Stress-test a lower-rent or higher-expense case
FAQ
How do you calculate the 1% rule?
Divide expected monthly rent by the property purchase price and express the result as a percentage. The shortcut is only a first screen because it excludes operating expenses, financing, and initial repairs.
Does a property have to meet the 1% rule to be a good rental?
No. Market appreciation, expenses, financing, property condition, and investment goals differ. A property can miss the shortcut and still work, or meet it and still produce weak cash flow.