Short answer: A quick screen that says monthly rent should be at least 1% of the purchase price.
What the 1% rule says
The 1% rule is a quick filter: monthly rent should be at least 1% of the purchase price. A $200,000 home should rent for $2,000 or more.
Rent ÷ price ≥ 1%It exists to weed out deals fast, before you spend time on detailed numbers.
Why fewer homes pass it
When home prices rise faster than rents, the ratio of rent to price falls. In many higher-cost markets, very few listings reach 1%. That doesn't automatically mean every deal there is bad, but it does mean cash flow gets harder.
It can mislead in both directions
Two examples, scored with the full calculator:
| $250,000 home, $2,300 rent (0.92%): fails 1% | Cash flow $189/mo |
| $150,000 home, $1,600 rent (1.07%): passes 1% | Cash flow −$48/mo |
The first narrowly fails but still cash-flows. The second passes, but high taxes, insurance and repairs eat the profit. The rule can't see expenses.
What to check instead
Use the 1% rule as a first glance, then look at monthly cash flow, cash-on-cash return, cap rate and DSCR. FirstDoor counts the 1% rule as just one of five factors in its score for exactly this reason.
Worked example
A $250,000 house renting for $2,300/mo, 20% down at 7%, $3,000/yr tax and $1,400/yr insurance.
| Rent ÷ price | 0.92% |
| Monthly cash flow | $189 |
| Cash-on-cash | 3.9% |
Frequently asked questions
What is the 1% rule in real estate?
A quick screen that says monthly rent should be at least 1% of the purchase price.
Is the 1% rule still realistic?
In many higher-priced markets few homes meet it. Treat it as a rough filter and judge deals on cash flow, cash-on-cash return, cap rate and DSCR.
Can a property that passes the 1% rule be a bad deal?
Yes. High taxes, insurance, HOA fees or repairs can wipe out the cash flow even when rent looks high relative to price.
Keep learning
- What is a good cap rate?
- How much cash do you need for your first rental?
- Cash-on-cash return, explained
- How to analyze a rental property (step by step)
- Rental analysis glossary
Educational content, not financial advice. Loan programs and requirements change; confirm with a lender.