📘 What is the 1% Rule in Real Estate Investing?

The 1% Rule is a quick calculation used by real estate investors to evaluate whether a rental property might generate positive cash flow. According to the rule, the monthly rent of a property should be at least 1% of the total purchase price, including any upfront repairs, to be considered a good investment.

📌 When and Why the 1% Rule is Used

The 1% Rule is commonly used during the initial property screening phase. It offers a fast, back-of-the-napkin way to rule out properties that are unlikely to be profitable. While not a substitute for full underwriting, it's especially helpful for investors analyzing multiple deals in competitive markets.

🧮 How to Calculate the 1% Rule

To apply the rule, simply multiply the purchase price (plus any rehab or repair costs) by 1%. The resulting number is the minimum monthly rent the property should generate.

Example: If a property costs $200,000 and requires $10,000 in repairs, it should rent for at least $2,100/month to meet the 1% Rule.

✅ Pros

• Fast way to screen deals
  
• Helps avoid overpaying for low-yield properties
  
• Great for comparing multiple properties quickly
  

⚠️ Cons

• Doesn't account for taxes, insurance, maintenance, or vacancy
  
• Less useful in high-cost or low-rent markets
  

Can miss profitable properties with lower rent but higher appreciation or tax benefits