Guide
The 1% rule for rental properties, explained
Use this quick calculation to screen a property. Do not use it instead of a rent estimate.
What is the 1% rule?
The 1% rule is an initial screening method. Monthly rent should equal approximately1% of the purchase price. For example, 1% of $250,000 is $2,500. Investors use the rule before a full analysis.
Why investors use it
The rule needs only a listing price and an approximate rent. It can screen many listings at the start of a search.
Where it breaks down
- It excludes taxes, insurance, HOA fees, maintenance, and vacancy.
- It excludes the interest rate, down payment, and loan term.
- Few properties meet the rule in some high-cost markets.
- An incorrect rent estimate produces an incorrect result.
How to use the rule
Use the 1% rule as an initial filter, not as a final decision. Next, get a rent estimate based on comparable rentals. Calculate the Gross Rent Multiplier. Then calculate expenses and financing before you make an offer.