What is the 1% rule?
The 1% rule is a back-of-the-envelope screening filter investors use to decide whether a rental property deserves a full underwrite. The rule:
That's it. No expenses, no financing, no projection — just a 5-second sanity check.
Why investors use it
The 1% rule exists because new investors look at too many properties. Reading every listing in detail is slow. A quick gross-rent-to-price filter cuts the universe of properties down to the ones likely to cash-flow, which is where the time investment in full underwriting pays off.
Veteran investors who know their market well often skip the rule entirely — they can eyeball whether a property “feels right.” New investors and out-of-market buyers benefit from the discipline.
When the 1% rule works
- Cash-flow markets. Midwest cities (Cleveland, Detroit, Memphis), Sun Belt suburbs, and rural areas where prices are low enough that the math works.
- Buy-and-hold investors. If your strategy depends on monthly cash flow rather than appreciation, you need rent that significantly exceeds expenses.
- Triage when looking at many properties. A weekend of scrolling listings is exhausting; the 1% rule makes the scroll productive.
When the 1% rule misleads
- Coastal / Tier-1 markets.Almost nothing in SF, NYC, Seattle, or Boston passes the 1% rule. That doesn't mean the deals are bad — it means cash flow isn't the goal in those markets. Investors accept lower rent-to-price ratios in exchange for higher long-term appreciation.
- Properties with unusual expenses. A high-HOA condo, a property with $20k annual property taxes, or a house needing $60k of rehab can pass the 1% rule and still be a money-loser.
- Properties with above-market rent. If the current tenant is paying more than what a new lease would fetch, the 1% rule overstates the real return. Confirm rents are sustainable.
After the 1% rule: what to check
A property that passes the 1% rule has earned a closer look. Next steps:
- Pull the actual property tax bill (not estimate)
- Get an insurance quote from a real broker
- Walk the comps — what do similar units actually rent for?
- Get a rough rehab estimate if the property needs work
- Run the full underwrite — cap rate, CoC, DSCR, cash flow
TrueCap handles steps 4 and 5 in about four minutes once you have the inputs.
Frequently asked questions
What is the 1% rule in real estate?+
The 1% rule says monthly rent should equal at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. It's a 5-second screening filter, not a complete analysis.
Is the 1% rule still relevant in 2026?+
Yes, but with context. In high-appreciation coastal markets, almost no property passes the 1% rule — and many of those are still great investments because appreciation makes up the difference. In cash-flow markets (Midwest, Sun Belt), the 1% rule is still a useful quick filter for healthy rentals.
What's the difference between the 1% rule and cap rate?+
The 1% rule is gross rent over price. Cap rate is NOI (rent minus operating expenses) over price. The 1% rule is a faster screening tool; cap rate is the more accurate metric for actual underwriting. A property can pass the 1% rule but have a poor cap rate if expenses are unusually high.
What about the 2% rule?+
Some investors target a 2% rule for high-cash-flow markets. Realistically, very few US properties hit 2% in 2026 — most that do are in distressed neighborhoods where management headaches eat the cash flow. Pass any 2% deal through a deeper underwrite before celebrating.
If a property fails the 1% rule, should I skip it?+
Not automatically. Failing the 1% rule means: (a) it's an appreciation market where investors accept lower cash flow, or (b) the price is too high relative to rent. Decide which one applies. Buy-and-hold cash flow investors usually skip failing properties; appreciation-focused investors don't even look at the 1% rule.
Does the 1% rule work for multi-family?+
Yes, just use total monthly rent across all units. A duplex priced at $250,000 with $1,400 + $1,200 rent ($2,600 total) hits 1.04% — it passes. The rule is unit-count-agnostic.