The 1% Rule — and Why It's Not Enough
A useful 10-second filter that has quietly talked people into bad deals and out of good ones.
What the 1% rule says
The 1% rule states that a rental's monthly rent should be at least 1% of its purchase price. A $200,000 house should rent for $2,000+/month to "pass." It's a screening shortcut — a way to glance at a listing and decide whether it's worth a full analysis. As a first filter, it's genuinely handy.
Why it breaks down
The rule says nothing about expenses, financing, or the market. Two properties can both hit 1% and have wildly different cash flow once you account for property taxes (which vary enormously by state), insurance, vacancy and management. A property in a high-tax area can pass the 1% rule and still lose money every month.
It also gets harder to satisfy as interest rates and prices rise. In many strong appreciation markets, almost nothing meets 1% — yet investors there make excellent returns through equity growth and rent increases. Rigidly applying the rule would have you skip entire metros.
What to check instead
Treat the 1% rule as a doorbell, not a verdict. Once a property gets your attention, run the numbers that actually decide profitability:
• Real cash flow after vacancy, maintenance, capex and management.
• Cash-on-cash return on your actual invested capital — see cap rate vs cash-on-cash.
• DSCR (NOI ÷ debt service) — lenders want 1.20–1.25+, and so should you.
• A multi-year projection that includes appreciation and loan paydown, not just year one.
The 1% rule takes ten seconds; a proper analysis takes about five minutes. The free rental calculator does both — it flags the 1% rule and computes the numbers that actually matter, so you never buy on a rule of thumb alone.