The 1% rule is the fastest screen in real estate, and also the most misused. Here is what it means, how to use it without letting it make your decisions, and why it rarely holds at today's rates.
The 1% rule says a rental's monthly rent should be at least 1% of the purchase price. It is a handy 10-second screen, not a buy signal. At 2026 financing costs it rarely holds, so use it to decide what to analyze, never to decide what to buy.
Take the monthly rent and divide it by the purchase price. If the result is 1% or more, the property passes the screen. A $200,000 house renting for $2,000 a month hits exactly 1%. A $300,000 house renting for $2,000 comes in at about 0.67% and fails.
The appeal is speed. You can run it in your head on a listing before spending any real time on the deal.
The rule became popular when mortgage rates were far lower. At today's rates, the monthly payment on a property eats a much larger share of the rent, so a deal that only just meets 1% can still lose money after the loan and real expenses. Meanwhile, in many strong markets, almost nothing hits 1%, which would wrongly rule out every deal there.
In other words, the 1% rule has not adjusted for interest rates, but your underwriting has to.
The rule is still useful for one job: quickly sorting a long list of listings into "worth modeling" and "probably not." That is it. Once a property clears the screen, the real work begins: pull actual rent, load every expense, model today's rate, and read the numbers that actually decide the deal.
Instead of a single ratio, look at cash flow after every real expense, cash-on-cash return, loan coverage, and your walk-away price. The free DealGauge calculator computes all of them in seconds and grades the deal A to F.
A $250,000 duplex renting for $2,600 a month hits about 1.04%, so it passes the screen. But once you add today's mortgage payment, vacancy, maintenance, capital expenditures, and management, the monthly cash flow might be barely positive or slightly negative. The 1% rule said "look closer," and looking closer is exactly what saved you.
The 2% rule is a stricter version of the same idea. It is even harder to meet in 2026 and usually points to higher-risk, lower-cost markets. Treat it the same way, as a screen only.
Full underwriting: real rent, all expenses, today's rate, and the four numbers that decide a deal. See our guide on how to know if a rental is a good deal.
No. Plenty of properties below 1% still work, especially in stable or appreciating markets. That is exactly why the rule should screen, not decide.
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General information and educational content only, not investment, tax, or legal advice. Benchmarks are common rules of thumb, not guarantees or projected results. Verify every figure and consult a qualified professional before purchasing any property.