1% Rule
A screening guideline stating that monthly rent should be at least 1% of the purchase price.
Definition
The 1% Rule is a quick screening tool suggesting that a rental property's monthly rent should equal or exceed 1% of the purchase price. A $200,000 property should rent for at least $2,000 per month to pass this test. Properties meeting the 1% rule are more likely to produce positive cash flow, though this is just a rough filter — actual cash flow depends on expenses, taxes, insurance, and financing. In many high-cost markets, finding properties that meet the 1% rule is nearly impossible. It is most useful as a first-pass screening tool before running detailed numbers.
Related Terms
Rent-to-Price Ratio
Monthly rent divided by the property price, used to quickly evaluate cash flow potential.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
GRM (Gross Rent Multiplier)
The property price divided by annual gross rent, used as a quick screening tool for investment properties.
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