Glossary
1% rule
The 1% rule says a rental's monthly rent should be at least 1% of what you pay for it, including repairs. A $150,000 all-in rental would need about $1,500 a month in rent.
It is a fast screen, like the 70% rule for flips. It does not look at taxes, insurance, HOA, interest rates or repairs, so passing it does not mean the rental cash flows.
The formula
Monthly rent / (price + repairs) at or above 1%.
- Price
- $130,000
- Rehab
- $45,000
- All-in
- $175,000
- Monthly rent
- $2,150
Rent / all-in1.23%, passes
Why it is only a first screen
- High-tax and high-insurance areas can fail on cash flow even at 1%.
- At higher interest rates, the payment eats more of the rent.
- In many expensive markets almost nothing passes, yet some rentals still work on cash-on-cash return or long-term equity.
Check the real cash flow in the rental property calculator and the ratio lenders use in the DSCR calculator.
Questions
Is the 1% rule still realistic?
In some markets yes, in many no. Treat it as a quick sort, then run the full cash flow.
Written by Austin Frangoules | Updated
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