How the 1% rule works
Monthly rent ÷ (Purchase price + Repairs) ≥ 1%
The rule is a screening tool. It lets you sort through dozens of listings in minutes and spend real analysis time only on those that come close.
Example
A house costs $180,000 and needs $15,000 of work, so the all-in cost is $195,000. It would need to rent for $1,950 a month to pass. At $1,800 the ratio is 0.92%: close, and worth a full cash flow analysis.
Limits of the rule
The 1% rule ignores taxes, insurance and interest rates, which vary a lot between markets. A property in a high-tax state can pass the rule and still lose money; one in a low-tax area can miss it and cash flow fine. Always follow up with a cash flow calculation.
Common questions
Is the 1% rule still realistic?
In many expensive metros it's rare. Investors there often accept 0.7–0.8% and rely on appreciation, while many Midwest and Southern markets still offer 1% deals.
Should repairs be included?
Yes. Your real cost is the price plus what it takes to make the property rentable.