1% Rule Calculator

Worked example

A three-bedroom house is listed at $165,000 and needs $10,000 of work before it can be rented, for an all-in cost of $175,000. Similar homes nearby rent for $1,600 a month.

$1,600 / $175,000 = 0.91%, just under the 1% rule. To pass, the house would need to rent for $1,750 a month, or you would need to buy it for no more than $150,000 including the planned repairs budget.

Missing by a small amount is not a reason to walk away. It is a reason to look at the real numbers: expenses, financing and cash flow.

What the 1% rule is

The 1% rule is a quick filter for rental property. If monthly rent is at least 1% of the purchase price plus any up-front repairs, the property has a decent chance of producing positive cash flow with normal financing. A $200,000 house should rent for at least $2,000 a month. The 2% rule is a stricter version that only very cheap or high-risk properties tend to meet.

The appeal is speed. You can check the rule with two numbers from a listing in a few seconds, and it lets you skip most properties without spending time on a full analysis.

Why it works, and when it does not

Operating costs, vacancy and the mortgage all scale roughly with price, while rent is the only income. A property whose rent is a high share of its price has more room to cover those costs. That is all the rule really measures.

It breaks down in several common situations:

• Expensive markets. In many coastal cities almost nothing meets 1%, yet investors still buy for appreciation. The rule would screen out the whole market.
• Very cheap properties. Houses that pass 2% easily often sit in areas with high turnover, high repair costs and tenants who struggle to pay. Expenses eat the extra rent.
• High property taxes or owner-paid utilities. Two houses with the same price and rent can have very different expenses.
• Interest rates. The rule was popularized when mortgage rates were much lower. At higher rates, a property that barely meets 1% may still lose money each month.

Using the 1% rule as a first filter

Treat the rule as a way to sort listings, not to approve deals. A sensible process looks like this:

• Screen listings with the 1% rule or the gross rent multiplier. A 1% ratio is the same as a GRM of about 8.3.
• For properties that pass or come close, estimate cash flow with the 50% rule calculator.
• For anything still interesting, build a real NOI from taxes, insurance, repairs and management in the NOI calculator, then check the return on your cash with the cash-on-cash calculator.

Getting the inputs right

Include repairs you must make before the first tenant moves in, since that money is part of what you pay for the property. Use the rent similar homes are actually renting for, not the asking rents on long-vacant listings or the seller's projection. Rental listing sites, local property managers and recent leases in the neighborhood are better sources. If the property has more than one unit, enter the total rent for all units.

Turning the rule into an offer price

The result also shows the highest price that would meet the 1% rule at the current rent, after subtracting your repair budget. That number is a useful anchor when you write an offer on a property that misses the rule. It is not a price you are owed, but it shows the seller and yourself how far the asking price is from what the rent supports.

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Results are estimates for education only, not financial, tax or legal advice. Check numbers with your lender and advisors before you buy.