The 1% rule is a rental screening heuristic: monthly rent at or above 1% of the property's total acquisition cost (purchase plus rent-ready repairs) suggests the property may cash flow and deserves full analysis. Below 1%, the property will usually struggle to cover expenses plus a mortgage. It is a screen, not a verdict — it knows nothing about your taxes, insurance, or interest rate, all of which the full cash-flow analysis must check.
The formula / structureMonthly Rent ÷ Total Acquisition Cost ≥ 1% (screening threshold)
1% Rule: a worked example
Worked example. All-in cost $158,000 → the 1% target rent is $1,580/mo. If realistic market rent is $1,600, the property passes the screen. If realistic rent is $1,350 (0.85%), the screen says pass on it unless something structural — a big purchase discount or added income — changes the picture.
What affects 1% Rule
- Local rent-to-price relationship (many high-cost markets rarely reach 1%)
- Interest rates and taxes, which the rule ignores
- Whether rent is market-verified or the seller's claim
- Subsidized rents — a payment standard can set rent above open-market levels
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