Quickly screen rental properties using the 1% rule - a simple guideline that suggests monthly rent should be at least 1% of the purchase price for a property to potentially generate positive cash flow.
$300,000
$2,500
Close (0.7-1.0%)
Property is close to the 1% rule. May still be viable in strong appreciation markets
1% Target Rent
$3,000
Actual Rent Ratio
0.83%
Formula:
1% Rule Target = Purchase Price × 1%
= $300,000 × 1%
= $3,000
The 1% Rule is a quick screening tool used by real estate investors to identify potentially profitable rental properties. It suggests that a property's monthly rent should be at least 1% of its total purchase price to have a good chance of generating positive cash flow.
The 1% rule is best used as an initial screening tool, not a definitive investment criterion. If a property passes the 1% rule, it warrants further detailed analysis. If it fails, you may want to move on to other opportunities unless there are compelling reasons (like strong appreciation potential) to proceed.
The 1% rule is harder to achieve in expensive coastal markets like San Francisco, New York, or Los Angeles, where investors often accept 0.5-0.7% ratios due to strong appreciation potential. Conversely, in more affordable Midwest or Southern markets, the 1% rule is more commonly achievable.
Pro Tip: Use the 1% rule as a quick filter, but always conduct comprehensive due diligence including detailed cash flow analysis, market research, property inspection, and consideration of your investment goals. A property that passes the 1% rule still needs to be evaluated for actual expenses, financing terms, and long-term potential.