The 1% Rule in Real Estate Investing: What It Is, How It Works, and Whether It Still Applies Today

If you’ve been researching real estate investing, chances are you’ve come across the 1% Rule. It’s a widely known, often cited benchmark that’s especially popular with new and buy-and-hold investors. It promises a simple way to filter potential rental properties and determine—at a glance—whether a deal is worth a deeper look.

But what exactly is the 1% Rule?Does it still work in today’s market of rising home prices, increasing interest rates, and tighter cash flow margins?

And if it doesn’t always apply, what should you use instead?

In this guide, we’ll walk you through everything you need to know about the 1% Rule in real estate investing. You’ll learn:

What it means and how to calculate it
Why investors use it
How it applies in different markets
Where it breaks down
And how to use it the right way in 2025 and beyond

Let’s start with the basics.

What Is the 1% Rule in Real Estate?

The 1% Rule states that a rental property should generate monthly rent equal to at least 1% of the purchase price.

In formula terms:

Monthly Rent ≥ 1% of Purchase Price

Example:

If a property costs $200,000, then to meet the 1% Rule, it should rent for at least $2,000 per month.

This rule is not designed to replace full financial analysis. Instead, it serves as a quick screening tool—a first-pass filter to help you determine whether a property is worth investigating further.

Why Investors Use the 1% Rule

Real estate investing comes with a lot of variables—mortgage payments, taxes, insurance, maintenance, property management, vacancies, and more. Evaluating every single property in detail is time-consuming and often inefficient.

The 1% Rule is popular because it is:

Fast and simple to calculate
Useful for quickly comparing multiple listings
A first step in identifying potentially cash-flowing properties
A way to weed out overpriced or underperforming deals early
A rough but reliable guideline for buy-and-hold investors targeting monthly income

It gives you a rough sense of the rent-to-price ratio, which is a key driver of cash flow. The higher the rent relative to the price, the more room you have to cover your expenses and still profit.

A Real Example: How the 1% Rule Works

Let’s say you’re analyzing two different rental properties:

Property A:

Purchase Price: $250,000
Monthly Rent: $1,900
1% of $250,000 = $2,500
Result: Property A does not meet the 1% Rule

Property B:

Purchase Price: $180,000
Monthly Rent: $1,900
1% of $180,000 = $1,800
Result: Property B does meet the 1% Rule

On paper, Property B appears to be the stronger candidate for cash flow. But remember—this is just an initial filter. You still need to evaluate expenses, condition, financing, and other critical factors before making a decision.

What the 1% Rule Does Not Include

One of the biggest mistakes new investors make is treating the 1% Rule as a complete analysis. It is not. It does not account for:

Property taxes (which vary dramatically by state or municipality)
Insurance premiums
Mortgage interest or type of financing
Repairs and maintenance reserves
Capital expenditures
Vacancy periods and turnover costs
Property management fees
HOA dues
Utilities (if paid by the landlord)

Because of these exclusions, a property that passes the 1% Rule could still end up with negative cash flow once real-world expenses are factored in. Likewise, a property that falls short of the 1% Rule could still perform well if other conditions are favorable.

Does the 1% Rule Still Work in 2025?

Short answer: It depends on your market—and your goals.

As home prices and interest rates have climbed in recent years, it has become increasingly difficult to find properties that meet the 1% Rule, particularly in high-demand urban and suburban areas.

Here are a few examples based on current trends:

A $400,000 home renting for $2,200 per month = 0.55%
A $300,000 duplex generating $2,000 in monthly rent = 0.66%

These properties fail the 1% Rule—but that doesn’t automatically make them bad investments. They may still cash flow modestly, appreciate over time, or offer other advantages like lower vacancy or better tenant profiles.

On the other hand, in certain Midwest or Southeastern markets, the 1% Rule is still achievable—or even beatable. In these markets, homes priced between $80,000 and $200,000 can often generate rents that meet or exceed 1%.

When the 1% Rule Works Well

The 1% Rule is most effective when:

You are screening many properties quickly
You are investing in lower-cost markets where rental demand is steady
Your primary goal is monthly cash flow
You are looking at traditional rentals, such as single-family homes, duplexes, or triplexes
You want a first-pass filter to narrow down your list of potential deals

If you are analyzing a dozen properties in a weekend, the 1% Rule is a helpful shortcut to avoid wasting time on listings that clearly will not work.

When the 1% Rule Might Not Apply

There are several scenarios where the 1% Rule is less helpful—or even irrelevant:

1. High-Price, High-Appreciation Markets

In cities like San Diego, New York, Seattle, or San Francisco, rent-to-price ratios are often far below 1%. Investors in these areas are typically relying on long-term appreciation, tax benefits, or creative strategies—not just cash flow.

2. Short-Term Rentals (Airbnb, VRBO)

With short-term rentals, monthly rent is not fixed. Seasonality, occupancy rates, and nightly pricing strategies all affect your income. The 1% Rule assumes stable monthly rent, which does not apply in these models.

3. House Hacking

If you’re planning to live in part of the property while renting the rest (a duplex or a home with roommates), your cash flow calculation will be different. The 1% Rule does not account for owner-occupied financing or rent offset.

4. Commercial or Mixed-Use Properties

These types of investments require more detailed analysis, including tenant quality, lease structures, and operating income. Simple ratios like the 1% Rule are not sufficient.

Other Metrics You Should Use Alongside the 1% Rule

If you want a more accurate picture of a property's performance, consider these:

Cash-on-Cash Return: Measures your annual return based on how much cash you’ve invested.
Cap Rate (Capitalization Rate): Net operating income divided by the purchase price—helps compare properties.
Gross Rent Multiplier (GRM): Purchase price divided by annual gross rent.
IRR (Internal Rate of Return): Long-term profitability including future cash flows and eventual sale.

These require more inputs—but they also deliver better insights.

How to Use the 1% Rule the Right Way

The 1% Rule can still be a valuable tool—but only if used properly. Here’s how to make it work for you:

1. Use It As a Filter—Not a Final Answer

The 1% Rule is for screening, not decision-making. It helps you decide which properties to analyze further—not which ones to buy.

Always run a full analysis that includes:

Your loan details
Local property taxes and insurance
Realistic rent estimates
Maintenance and capital expenditure reserves
Management costs (even if you plan to self-manage)

2. Adjust for Local Conditions

In high-tax areas, high-HOA neighborhoods, or flood zones, the 1% Rule might not be enough to preserve cash flow. You may need to look for 1.2% or even 1.5% rent-to-price ratios.

In contrast, in low-tax or high-rent areas, a 0.8% deal might still generate strong cash flow.

3. Use Accurate Rent Estimates

Never assume the listing agent’s rent estimate is correct. Use tools like:

Rentometer
Zillow Rent Estimate
PropStream
Realtor.com rental listings
Local property managers

Check comparable properties with similar size, layout, condition, and location. Accurate rent data is crucial—because even a few hundred dollars can make or break your cash flow.

Final Thoughts: Is the 1% Rule Still Useful?

Yes—but only if you use it in context.

The 1% Rule is not a relic of the past. It is still one of the best quick filters for buy-and-hold investors focused on cash flow. But today’s market is more nuanced than it was a decade ago. Price growth, interest rates, and local dynamics all influence what makes a deal “good.”

If you’re investing in 2025, here’s the bottom line:

Use the 1% Rule to filter properties quickly
Follow up with detailed analysis
Adjust your expectations based on market realities
Always match your strategy to your goals—not just someone else's rule of thumb

Because at the end of the day, the best investment is the one that works for your situation, your timeline, and your financial plan.

Need help analyzing a deal with real numbers—not just rules of thumb? Let’s connect. I’ll walk you through a side-by-side breakdown of the property, run both cash flow and appreciation projections, and help you decide if the deal truly fits your goals.