TL;DR: The 1% rule says a rental’s monthly rent should be at least 1% of the purchase price. It’s a fast way to screen deals, but it ignores expenses, location, and market trends—so don’t stop your analysis there.
What is the 1% rule?
If a property costs $200,000, the 1% rule says it should rent for at least $2,000/month. It’s a quick way to see if a deal might cash flow—but it’s not a guarantee.
When it helps
- Screening lots of listings quickly
- Comparing properties in the same market
- Spotting overpriced homes or underpriced rents
Where it falls short
- Ignores taxes, insurance, maintenance, and vacancy
- Doesn’t account for local rent control or seasonal demand
- Some strong markets rarely hit 1%, but still offer solid returns
A better approach
Use the 1% rule as a first pass, then run a full analysis with all expenses and realistic rent estimates. Housalyzer’s Investment Property Calculator can help you see the real numbers.
Real-world example
A $300,000 home renting for $2,400/month (0.8%) might look weak by the 1% rule, but if taxes are low and appreciation is strong, it could still be a winner. Meanwhile, a $100,000 property renting for $1,200/month (1.2%) in a declining area might be a trap.
Bottom line
The 1% rule is a filter, not a decision-maker. Use it to save time, but always dig deeper before you buy.
Disclaimer: This is not financial advice. Always consult a qualified professional before making investment decisions.