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1% rule calculator
The 1% rule is a five-second screen: a rental's monthly rent should be at least 1 percent of its purchase price. Enter both to see where a property lands, and the rent or price it would take to pass.
Just under 1%. Common in competitive markets. Not a reject on its own, but the margin for expenses is thin, so run the full numbers.
The 1% rule ignores every expense. For real cash flow after costs and a mortgage, use the cash-on-cash calculator.
What the 1% rule actually tells you
The 1% rule exists for one job: deciding, in a few seconds, whether a listing is worth a real underwrite. It is a filter for a spreadsheet of forty properties, not a verdict on any single one. Rent that clears 1 percent of price gives you enough gross income that there's at least a chance of cash flow after expenses. Rent well under 1 percent almost never does.
Why it breaks in expensive markets
Rents do not scale with prices. When a market's prices double but rents rise 40 percent, the whole area falls below 1 percent, and it stays there for years. That's why coastal metros almost universally fail the rule. It doesn't mean they're bad investments, it means their returns come from appreciation and loan paydown rather than monthly cash flow. Use the rule to compare properties within a market, not to compare markets.
Why passing it isn't enough
The rule says nothing about property taxes (which vary 5x across the country), insurance, vacancy, maintenance, management, or your interest rate. A property at exactly 1 percent in a high-tax state with an old roof can be a guaranteed monthly loss. The rule gets you to "worth a closer look," and no further.
The 1% rule on two properties
Property B $180,000, rents $1,900 → 1.06% passes
Property B clears the rule and Property A doesn't, but that only earns B a spot on the "underwrite these" list. If B is in a state with 2.5% property taxes and A is in one with 0.6%, the full analysis could easily flip the ranking. The rule sorts; it doesn't decide.
1% rule questions
What is the 1% rule in real estate?
It says a rental's monthly rent should be at least 1 percent of its total purchase price. A $250,000 property should rent for about $2,500 a month to pass. It is a fast screen to decide what deserves a real underwrite, not an analysis by itself.
Is the 1% rule still realistic?
In high-price coastal markets almost nothing clears 1 percent, and holding out for it would rule out the entire region. In many Midwest and Southeast markets it's still achievable. Treat it as a relative filter within a market rather than an absolute pass or fail.
Does passing the 1% rule mean positive cash flow?
No. It ignores taxes, insurance, vacancy, maintenance, management, and your interest rate. A property can clear 1 percent and still lose money after real expenses and a mortgage.
What is the 2% rule?
The same idea with a stricter threshold: rent of 2 percent of price. Properties that hit 2 percent are rare and usually carry higher risk, older stock, or tougher neighborhoods that the number is compensating for.
Should I skip a deal that fails the 1% rule?
Not automatically. It's a first-pass filter. Plenty of good deals fail it and plenty of bad ones pass it. Run the full numbers before deciding. Faro does that underwrite from a pasted listing in seconds.
Every calculator
Past the screen? Run the real numbers.
Paste a listing and Faro pulls comps, taxes, and rent estimates, then tells you the cash flow and the price you should actually offer.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.