1% Rule Calculator
What Is the 1% Rule in Real Estate?
The 1% rule states that a rental property’s monthly gross rent should be at least 1% of the total investment cost (purchase price plus repairs). The rent-to-price ratio is a quick screening tool in real estate investment analysis — investors use it to filter deals before running a complete cash flow analysis. A property that passes the 1% rule is likely to generate positive cash flow; the 2% rule is a stricter threshold that signals strong cash flow potential.
The Math Behind the 1% Rule
The 1% rule implies 12% annual gross rental yield relative to total investment. Combined with the commonly cited 50% expense rule — which estimates half of gross rent goes to operating expenses — the resulting net operating income (NOI) is roughly 6% of the investment. At the 4-5% interest rates common when this heuristic gained popularity (~2010-2015 via BiggerPockets community), 6% NOI was generally sufficient to cover debt service and produce modest positive cash flow with conventional 20-25% down financing.
Why the 1% Rule Breaks at Current Rates
At 6.5-7% interest rates, the original math no longer holds. Annual debt service on a 75% LTV loan at 7% is approximately 6% of the purchase price — consuming nearly all the NOI implied by the 1% rule. Investors who relied on 1% as a go/no-go filter are finding fewer qualifying deals. Modern adjusted targets of 0.7-0.8% may be more realistic for markets with strong appreciation, while cash-flow-focused investors should target 1%+ and look beyond primary markets (Doorvest 2025 analysis, RealWealth).
Rent-to-Price vs GRM: Beginner vs Professional Framing
The rent-to-price ratio and Gross Rent Multiplier (GRM) measure the same relationship inverted. If rent-to-price is 1% (0.01), GRM = 1/0.01/12 ≈ 8.3. Rent-to-price is residential investor shorthand; GRM is the metric used in commercial appraisals and institutional underwriting. Both ignore operating expenses — for expense-adjusted analysis, use our cap rate calculator.
How to Use This Calculator
- Purchase Price — Enter the property’s acquisition price. Use the actual negotiated price, not the listing or assessed value.
- Repair/Rehab Costs — Enter estimated renovation costs if this is a value-add deal. The calculator adds this to purchase price for the total investment basis. Set to $0 for turnkey properties.
- Monthly Rental Income — Enter the expected gross monthly rent at full occupancy. For multi-unit properties, sum all units. Use comparable market rents from Zillow, Rentometer, or local property managers.
- Vacancy Rate — The expected percentage of time the property sits vacant between tenants. Use 5% for strong rental markets, 8-10% for average markets, and 12-15% for higher-risk areas.
- Monthly Operating Expenses — Include property taxes, insurance, maintenance, repairs, and management fees. A rough estimate is 40-50% of gross rent for residential properties.
- Closing Costs (%) — Typical buyer closing costs range from 2-5% of the purchase price. This affects the annual return calculation.
The calculator shows your rent-to-price ratio with gap analysis to the 1% and 2% targets, plus an estimated annual return based on net income relative to total cash invested. Use the gap-to-1% figure to determine how much rent increase (or price reduction) would be needed to meet the screening threshold.
Worked Examples
Jordan — Buy-and-Hold SFH in Memphis, TN
Jordan is evaluating a turnkey single-family rental in Memphis listed at $120,000 with minimal repairs needed ($5,000). The property rents for $1,200/month in a stable working-class neighborhood with 8% vacancy. At 0.96% rent-to-price, it barely misses the 1% threshold but strong cash flow fundamentals make it worth deeper analysis with the cash-on-cash calculator.
Inputs
- Purchase Price
- $120,000
- Estimated Repair/Rehab Costs
- $5,000
- Monthly Rental Income
- $1,200
- Vacancy Rate
- 8.0%
- Monthly Operating Expenses
- $350
- Closing Costs (%)
- 3.0%
Results
- Rent-to-Price Ratio
- 0.96%
- 1% Rule Target Rent
- $1,250
- 2% Rule Target Rent
- $2,500
- Gap to 1% Rule
- $50
- Monthly Net Income (est.)
- $754
- Estimated Annual Return
- 7.04%
Anika — Appreciation Market Analysis in Boise, ID
Anika is looking at a $340,000 property in Boise with $10,000 in repairs, renting for $2,200/month. At just 0.63% rent-to-price, it fails the 1% rule decisively — the $1,300 gap means she’d need $3,500/month rent to pass. However, Boise’s strong appreciation (5%+ annually in recent years) suggests a strategy focused on long-term equity growth rather than immediate cash flow. See our investment projection calculator for appreciation-driven analysis.
Inputs
- Purchase Price
- $340,000
- Estimated Repair/Rehab Costs
- $10,000
- Monthly Rental Income
- $2,200
- Vacancy Rate
- 5.0%
- Monthly Operating Expenses
- $650
- Closing Costs (%)
- 3.0%
Results
- Rent-to-Price Ratio
- 0.63%
- 1% Rule Target Rent
- $3,500
- 2% Rule Target Rent
- $7,000
- Gap to 1% Rule
- $1,300
- Monthly Net Income (est.)
- $1,440
- Estimated Annual Return
- 4.80%
Travis — Value-Add Rehab in St. Louis, MO
Travis is targeting a distressed duplex in St. Louis at $95,000 that needs $25,000 in renovations. Post-rehab, he expects $1,250/month rent from both units combined. With a total investment of $120,000 and 1.04% rent-to-price, the value-add strategy pushes the deal above the 1% threshold — the property would have been at 0.66% at the $190,000 after-repair value that comparable renovated duplexes sell for.
Inputs
- Purchase Price
- $95,000
- Estimated Repair/Rehab Costs
- $25,000
- Monthly Rental Income
- $1,250
- Vacancy Rate
- 7.0%
- Monthly Operating Expenses
- $400
- Closing Costs (%)
- 3.0%
Results
- Rent-to-Price Ratio
- 1.04%
- 1% Rule Target Rent
- $1,200
- 2% Rule Target Rent
- $2,400
- Gap to 1% Rule
- -$50
- Monthly Net Income (est.)
- $763
- Estimated Annual Return
- 7.45%
Mei — High-Ratio, High-Risk Property in Detroit, MI
Mei found a $55,000 SFH in Detroit that rents for $1,150/month — an impressive 1.77% rent-to-price ratio, well above the 2% rule. However, the 15% vacancy rate, $10,000 rehab needs, and elevated operating expenses ($450/month for deferred maintenance) tell a different story. High rent-to-price ratios in distressed markets often come with proportionally higher costs and risk. The actual annual return of 9.5% is solid but far below what the headline ratio suggests.
Inputs
- Purchase Price
- $55,000
- Estimated Repair/Rehab Costs
- $10,000
- Monthly Rental Income
- $1,150
- Vacancy Rate
- 15.0%
- Monthly Operating Expenses
- $450
- Closing Costs (%)
- 3.0%
Results
- Rent-to-Price Ratio
- 1.77%
- 1% Rule Target Rent
- $650
- 2% Rule Target Rent
- $1,300
- Gap to 1% Rule
- -$500
- Monthly Net Income (est.)
- $528
- Estimated Annual Return
- 9.50%
Get the Free Rental Analysis Template
Download our Excel spreadsheet to analyze your own properties. Works with any rental property — just enter your numbers.
Frequently Asked Questions
What is the 1% rule in real estate? ▾
Monthly rent should be at least 1% of total investment (purchase price plus repairs). It is a quick screening tool used by investors to filter deals before doing a full cash flow analysis. Source: BiggerPockets community standard.
Is the 2% rule realistic? ▾
The 2% rule is much harder to achieve in most markets. It is more common in lower-cost markets or with significant value-add rehab. Many successful investors use 0.8-1.2% as a practical target range.
Should I pass on a property that fails the 1% rule? ▾
Not necessarily. The 1% rule ignores appreciation, tax benefits, equity buildup, and local market conditions. Use it as a screening filter, then do full cash flow analysis on properties that pass. Our [rental property investment projection calculator](/calculators/rental-property-investment-projection) shows how appreciation and equity buildup can make sub-1% properties profitable long-term.
Where did the 1% rule come from? ▾
The 1% rule emerged from the BiggerPockets investor community in the early 2010s as a quick screening heuristic. It gained popularity because at 4-5% interest rates common then, 1% monthly rent roughly produced break-even cash flow after typical expenses. The rule was never meant as a precise analysis — it's a first-pass filter.
What is the 50% rule and how does it relate to the 1% rule? ▾
The 50% rule estimates that half of gross rent goes to operating expenses (taxes, insurance, maintenance, vacancy, management). Combined with the 1% rule: if rent is 1% of price (12% annual gross yield), after 50% expenses you get ~6% NOI — roughly enough to cover financing. Both are screening shortcuts, not substitutes for actual cash flow analysis.
Can the 1% rule work in expensive markets? ▾
Rarely. In markets like San Francisco, Seattle, or Boise where home prices have outpaced rents, properties typically achieve 0.4-0.7% rent-to-price ratios. Investors in these markets focus on appreciation returns instead. For cash-flow-focused strategies, look at secondary markets in the Midwest and South.
How does the value-add strategy improve rent-to-price ratio? ▾
Value-add investing (buying below market, renovating, then renting at higher rates) can dramatically improve rent-to-price ratios. A property purchased at $95,000 with $25,000 in rehab ($120,000 total) renting for $1,250/month achieves 1.04% — above the 1% threshold. The key is that rehab dollars often generate more rent increase than the renovation cost.
For informational and educational purposes only. Not financial advice. Full disclaimer.