What Is 1% Rule?
The 1% rule is a quick rental-investing screening test: a property's monthly rent should be at least 1% of its purchase price for the deal to be worth a closer look.
Formula
Monthly Rent ÷ Purchase Price ≥ 1%Example
A $250,000 property would need to rent for at least $2,500 per month to pass the 1% rule.
Why it matters
It's a fast first filter, not a substitute for a full cash flow analysis — many solid deals in expensive markets don't hit 1%, and passing it doesn't guarantee positive cash flow once real expenses are counted.
1% Rule vs. 70% Rule
A buy-and-hold rental screening test — monthly rent should be at least 1% of purchase price.
A fix-and-flip screening formula — maximum offer is 70% of after-repair value, minus repair costs.
Both are fast first-pass filters for very different strategies — a property can fail one and still be a good deal under the other, depending on the investor's intended hold.
Related Terms
More Investing Terms
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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