How do you calculate the 1% rule?

1% Rule Threshold = Purchase Price × 1%. The property passes if Monthly Rent ≥ (Purchase Price × 0.01). The rent-to-price ratio is calculated as (Monthly Rent / Purchase Price) × 100.

What is the difference between 1% rule and cap rate?

The 1% rule uses gross monthly rent vs. purchase price and ignores expenses. Cap rate uses Net Operating Income (after expenses) divided by purchase price. Cap rate is more accurate; the 1% rule is faster for quick screening.

What does annualized gross yield mean?

Annualized gross yield = (Monthly Rent × 12) / Purchase Price × 100. It shows the gross annual return as a percentage of the purchase price before any expenses. A higher yield indicates better cash flow potential.

Can a property fail the 1% rule and still be a good investment?

Yes. Properties in high-appreciation markets (e.g., coastal cities) often fail the 1% rule but generate strong total returns through equity growth. Always combine the 1% rule with cap rate, cash-on-cash return, and market appreciation data.

Free 1% Rule Calculator

Instantly check if a rental property meets the 1% rule. Enter price and rent — get your pass/fail verdict in seconds.

Quick Answer: The 1% rule says monthly rent should equal at least 1% of the purchase price. A $250,000 home needs $2,500/month rent to pass. It's a fast screening tool — not a final verdict — and many profitable deals fall slightly below 1%.

1% Rule Calculator

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Understanding the 1% Rule

The 1% rule is one of the most widely used screening filters in rental real estate. It gives investors a fast gut-check before running deeper numbers with tools like a cap rate calculator or a rental property calculator.

1% Rule Formula

Monthly Rent ≥ Purchase Price × 1%

When the 1% Rule Matters Most

Wholesalers: Quickly filter leads before pulling comps.
Buy-and-hold investors: Screen listings before deep underwriting.
BRRRR investors: Ensure post-refi rent covers new mortgage payment.

Limitations of the 1% Rule

Ignores property taxes, insurance, maintenance, and vacancy.
Doesn't account for appreciation — critical in growth markets.
Does not factor in financing costs or down payment size.

Frequently Asked Questions

What is the 1% rule in real estate?

The 1% rule says monthly rent should be at least 1% of the purchase price. It is a quick screening tool, not a definitive analysis.

Is the 1% rule realistic today?

In many markets it is difficult to achieve due to high home prices. Properties at 0.7–0.9% can still be good deals depending on market appreciation and actual expenses.

What should I do after checking the 1% rule?

Run a full deal analysis. Use a cap rate calculator, cash-on-cash calculator, and review actual comps to confirm the ARV and rent estimates.