The 1% Rule in Real Estate
The 1% rule is the fastest back-of-the-envelope test in real estate investing: monthly rent should be at least 1% of the purchase price. It's a screen, not a verdict — here's how to use it well and when to ignore it.
How the 1% rule works
Multiply the purchase price by 1%. If the property can rent for that much per month, it passes. A $200,000 home passes if it rents for $2,000+/month. The idea is that properties clearing this bar tend to cash flow.
Why it's only a screen
The 1% rule ignores property taxes, insurance, interest rates, HOA fees and vacancy — all of which vary wildly by location. In low-tax, low-rate markets a 0.7% property can cash flow; in high-tax markets even 1.2% can lose money.
Use it to filter, then run the real numbers
Use the 1% rule to quickly skip obvious non-starters, then run a full analysis on the survivors. That's where cap rate, cash-on-cash and DSCR come in — the metrics that actually determine whether a deal works.
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