What this calculator does
The 1% rule is a quick screen some real estate investors use to shortlist rental properties before doing a full analysis: if the expected monthly rent is roughly 1% or more of the purchase price, the deal is considered worth a closer look. It is a filter, not a profitability calculation, and it says nothing about expenses, vacancy, financing costs or appreciation.
Different markets and property types naturally sit at different levels against this rule. Lower-priced properties in some markets can clear 1% comfortably, while higher-priced properties in markets driven more by appreciation than rental yield rarely come close, without that meaning either type is automatically a bad investment.
The formula
Divide the expected monthly rent by the purchase price and express the result as a percentage, then compare it against the 1% threshold.
| Term | Meaning |
|---|---|
| 1% rule ratio | Monthly rent as a percentage of purchase price: (rent ÷ price) × 100. |
| Monthly rent | The expected or actual monthly rental income for the property. |
| Purchase price | The price paid, or being considered, for the property. |
The inputs explained
| Field | What to enter |
|---|---|
| Expected monthly rent ($) | The expected monthly rent the property could realistically achieve. |
| Purchase price ($) | The purchase price of the property. |
When to use it
Screening a list of properties quickly
Running each candidate's price and expected rent through this ratio is a fast first pass, before spending time on a full cash flow analysis for the ones that clear the bar.
Comparing markets
The ratio highlights how differently priced markets sit against the same rule of thumb, which is one reason investors sometimes look outside their local area for rental-focused purchases.
Deciding whether to dig deeper
A property well below 1% is not necessarily a bad investment, but it usually needs a stronger case elsewhere, such as appreciation potential, to be worth the closer analysis that follows.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How the ratio changes with purchase price at a fixed rent
A fixed $2,100 monthly rent, against a range of purchase prices.
| Purchase price | Rent-to-price ratio | Assessment |
|---|---|---|
| $175,000 | 1.20% | Meets or exceeds the 1% screening threshold |
| $210,000 | 1.00% | Meets or exceeds the 1% screening threshold |
| $240,000 | 0.875% | Below the 1% screening threshold |
| $280,000 | 0.750% | Below the 1% screening threshold |
| $315,000 | 0.667% | Below the 1% screening threshold |
| $420,000 | 0.500% | Below the 1% screening threshold |
How the ratio changes with rent at a fixed purchase price
A fixed $280,000 purchase price, against a range of monthly rents.
| Monthly rent | Rent-to-price ratio | Assessment |
|---|---|---|
| $1,800 | 0.643% | Below the 1% screening threshold |
| $2,100 | 0.750% | Below the 1% screening threshold |
| $2,400 | 0.857% | Below the 1% screening threshold |
| $2,800 | 1.00% | Meets or exceeds the 1% screening threshold |
| $3,200 | 1.14% | Meets or exceeds the 1% screening threshold |
| $3,600 | 1.29% | Meets or exceeds the 1% screening threshold |
Questions
Is the 1% rule a guarantee of a profitable rental?
No. It ignores property taxes, insurance, maintenance, vacancy, management costs and financing, any of which can turn a property that clears 1% into a loss-making one once fully accounted for.
Why do some experienced investors ignore the 1% rule?
In many higher-priced markets, virtually no property clears 1%, which would rule out an entire market using a single heuristic rather than a full analysis of actual cash flow and appreciation prospects.
Is there a similar 2% rule?
Some investors reference a stricter 2% threshold aimed at lower-priced properties in cash-flow-focused markets, but it is used the same way: as a fast screen, not a substitute for detailed underwriting.
What should I check after a property passes the 1% screen?
A full analysis of operating expenses, vacancy assumptions, financing costs and expected cash flow, such as the figures used in the house flip ROI or BRRRR calculators for a renovation project, or a standard cash flow model for a straightforward rental.
For a full profit and return calculation on a renovation project rather than a buy-and-hold rental, see the house flip ROI calculator.