The 1% rule is one of the most widely repeated screening shortcuts in rental property investing -- and one of the most misunderstood. It is a quick filter, not an investment decision.
By Jessica Martinez · Real Estate Finance Editor · Updated June 2026A property that clears the 1% screen still needs a real cash flow check; the calculator handles that in under a minute.
The 1% rule says that for a rental property to potentially cash flow, monthly gross rent should be at least 1% of the total purchase price. A $200,000 property should rent for at least $2,000/month. Meeting the 1% rule does not guarantee positive cash flow, but properties that fall far below it are hard to make work with conventional financing.
The rule of thumb emerged because at rough estimates for operating expenses (40-50% of gross rent) and historical mortgage rates, a property renting at 1% of its price tended to produce modest positive cash flow. At lower rent-to-price ratios, debt service and expenses consume the income. The rule is a fast screening filter, not a substitute for a full analysis.
In many US markets, home prices have risen faster than rents since 2010. In expensive coastal cities, rent-to-price ratios of 0.4-0.6% are common. At those ratios, a conventional 20% down purchase typically produces negative or near-zero cash flow. Investors who focus on cash flow in those markets either buy in cash, use creative financing, or accept low (or negative) cash flow in exchange for expected appreciation.
Secondary and tertiary markets -- Midwest, Southeast, parts of the South -- often have higher rent-to-price ratios. Properties in those areas can hit or exceed 1%, and some distressed or value-add deals exceed 1.5%. The tradeoff is typically lower appreciation and sometimes thinner tenant pools.
The 2% rule (monthly rent = 2% of price) is an even more aggressive cash flow screen. Properties meeting the 2% rule were once found in declining markets with distressed assets. Today they are rare. When you find one, investigate carefully: the rent-to-price ratio may be high because the market or property carries significant risk.
Use it as a first-pass filter, not an underwriting tool: if a property sits at 0.6% or below, that alone does not rule it out in an appreciation-driven market, and a property that clears 1% is not automatically a good deal once real expenses and financing are factored in. Either way, run the full numbers before you commit.
For any deal that passes this screen: run a proper cash flow model in the rental calculator, then check what is cap rate and the full analysis framework for the next steps.
The 1% rule says monthly gross rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. It is a rough screening filter to quickly assess whether a property might cash flow, not a complete investment analysis.
It is hard to hit in most high-cost markets where prices have outpaced rents for years. In expensive coastal cities, rent-to-price ratios of 0.4-0.6% are common. The rule is more achievable in secondary and Midwest markets. Use it as a quick filter, then run a full analysis on anything that looks interesting.
The 50% rule says that roughly half of gross rental income will go to operating expenses (taxes, insurance, maintenance, management, vacancy) -- not counting mortgage payments. It is another rough screening shortcut. Combined with the 1% rule, it can give a quick sense of whether a property might produce positive cash flow, but neither replaces a detailed projection.
No. The 1% rule uses gross monthly rent before any expenses or mortgage payments. Whether cash flow is positive after mortgage depends on your down payment, interest rate, loan term, and operating costs. The rule is just a rent-to-price ratio filter, not a net cash flow projection.