Key takeaways
- The 1% rule: monthly rent should be ≥ 1% of the all-in cost (purchase + rehab).
- It's a five-second screen, not a profitability verdict.
- High-cost metros rarely hit 1% — investors there screen at 0.7–0.8%.
- A pass still needs a full cash-flow and cap-rate check before you offer.
What is the 1% rule?
The 1% rule says a rental's monthly rent should be at least 1% of its all-in cost — purchase price plus rehab. If rent clears 1%, the deal often cash-flows; if it's well under, it usually won't, and you can pass without a deeper dive.
Worked example
Using the defaults — a $200,000 all-in property renting for $1,600/month:
- 1% target: $200,000 × 1% = $2,000/month
- Actual rent: $1,600 → ratio $1,600 ÷ $200,000 = 0.80%
- Verdict: below target — it would need ~$400 more rent to pass
0.80% is common in mid-priced markets; it doesn't mean "bad," just that the deal leans on appreciation rather than cash flow.
1% rule vs. its cousins
| Screen | Rent target | Typical market |
|---|---|---|
| 2% rule | 2% of all-in | Rare — deep cash-flow markets |
| 1% rule | 1% of all-in | Balanced markets |
| 0.7 – 0.8% | Sub-1% | High-cost coastal metros |
Whether 1% is reachable depends on local price-to-rent ratios, which vary enormously across U.S. metros — see rental-market research from the Harvard Joint Center for Housing Studies.
Frequently asked questions
What is the 1% rule?
Monthly rent should be at least 1% of the total purchase plus rehab cost.
Is it still realistic?
In high-price markets, often not at a full 1% — use a lower screen there. In cash-flow markets it's very achievable.
Does it include rehab?
Yes — use the all-in cost so the ratio reflects your true investment.
What is the 2% rule?
A stricter version (rent ≥ 2% of cost). It's rare and mostly found in low-priced, higher-risk cash-flow markets.
Does passing mean it's a good deal?
No — it's only a screen. Confirm with cash-on-cash and cap rate before offering.
Why do expensive markets fail it?
High prices outpace rents there, so the rent-to-price ratio falls below 1% — buyers accept it for stronger appreciation.