Is the monthly rent at least 1% of the price? The 5-second screen that tells you which deals deserve a full analysis.
The 1% rule is a 5-second screen: monthly rent should be at least 1% of the purchase price. It won\'t tell you if a deal is good — it tells you which deals are worth a full analysis.
Monthly rent ÷ price
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below 1%meets 1%meets 2%
Enter the price and monthly rent to screen it against the 1% rule.
1% rule ratio = monthly rent ÷ purchase price, as a percent. At 1.0% the rent equals 1% of the price ($250,000 × 1% = $2,500/mo). The 2% rule is the aggressive version (2%+), rare outside low-price markets. This is a screening heuristic only — it ignores taxes, insurance, and financing. A deal that passes still needs a real cash-flow analysis.
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Built by LFO Capital's institutional CRE underwriting team · computed, not guessed — deterministic math, not an AI estimate · how we calculate →
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What the 1% rule is
The 1% rule is the simplest screen in rental investing: the gross monthly rent should be at least 1% of the purchase price. A $250,000 house should rent for about $2,500/month to pass. It's a five-second filter you can run on a listing before you spend an hour on a full analysis — a way to sort the maybe-deals from the definitely-nots.
The math: rent-to-price ratio = monthly rent ÷ purchase price. At 1.0% the rent is exactly 1% of the price. Above it, the deal has a fighting chance to cash flow with financing; well below it, the rent usually can't cover the mortgage plus real expenses.
What it is not
The 1% rule is a screen, not a verdict. It ignores property taxes (which swing wildly by state), insurance, HOA, your interest rate, and your down payment — all the things that actually decide cash flow. A property can pass the 1% rule and still lose money if the taxes are brutal or the rate is high; another can miss it slightly and cash flow fine with more money down. Passing means "worth a real look," not "good deal." Failing badly means "probably don't bother." Anything close needs the actual numbers.
The 2% rule
The 2% rule is the aggressive cousin: rent at 2%+ of price. It's rare and mostly lives in lower-priced markets — a $100,000 house renting for $2,000. Deals that clear 2% often cash flow strongly, but the low price point usually comes with tradeoffs (older stock, softer neighborhoods, higher turnover), so a passing 2% ratio is a reason to look hard, not to skip diligence.
Why the 1% rule got harder
In many markets, prices have risen faster than rents, so fewer properties clear 1% than a decade ago — especially in appreciation-driven metros where investors accept thin cash flow for long-run value growth. If you're in one of those markets, the 1% rule will fail almost everything; that doesn't mean no deal works, it means cash flow isn't the play there and you need to underwrite appreciation and the full hold explicitly. In cash-flow markets, the 1% rule still does its job as a fast first cut.
After the screen: run the real numbers
Use the 1% rule to decide what's worth analyzing, then analyze it properly. A property that passes still needs a full cash-flow workup — taxes, insurance, management, vacancy, maintenance, and CapEx against your actual financing. Run the rental cash-flow calculator on anything that clears the screen, and read how to analyze a rental property for the full process.
Frequently asked questions
What is the 1% rule in real estate?
The 1% rule says a rental's gross monthly rent should be at least 1% of its purchase price. A $200,000 property should rent for about $2,000/month to pass. It's a quick screening heuristic to decide whether a deal is worth a full analysis — not a measure of whether it's actually a good investment.
How do you calculate the 1% rule?
Divide the monthly rent by the purchase price and express it as a percent: rent ÷ price. If it's 1.0% or higher, the deal passes. Example: $2,500 rent on a $250,000 price = 1.0%, which meets the rule exactly.
What is the 2% rule?
The 2% rule is the aggressive version: monthly rent at 2% or more of the purchase price. It's uncommon and mostly found in lower-priced markets. Deals that clear 2% tend to cash flow strongly, but the low price point often carries higher risk, so it warrants extra diligence, not less.
Is the 1% rule still relevant?
It's still a useful fast filter in cash-flow markets, but in higher-priced, appreciation-driven metros almost nothing clears 1% — and that doesn't mean no deal works there, just that the strategy is appreciation and loan paydown rather than day-one cash flow. Treat the 1% rule as a screen, and always confirm with a real cash-flow analysis.
Does passing the 1% rule mean a property is a good investment?
No. The 1% rule ignores property taxes, insurance, HOA, your interest rate, and your down payment — the factors that actually determine cash flow. A property can pass the 1% rule and still lose money, or miss it and cash flow fine with more down. Passing just means the deal earned a full analysis.