1% Rule Calculator

Last reviewed April 2026

The 1% Rule is the fastest gut-check in rental property investing. Take the monthly rent and divide by the purchase price. If the answer is 1% or higher, the property is more likely to cash flow. That's it. It takes about three seconds and it eliminates 90% of overpriced listings before you even open a calculator. The LandlordCalc 1% Rule calculator does the math instantly and shows you what's missing from the equation if the property fails.

How the 1% Rule Works

You take monthly rent and divide by purchase price. So a $200,000 property that rents for $2,000 a month hits 1% exactly ($2,000 divided by $200,000 equals 0.01, or 1%). A $200,000 property that rents for $1,500 a month is at 0.75%, which fails the rule. A $200,000 property that rents for $2,500 hits 1.25%, which passes comfortably. That's the entire calculation.

Does the 1% Rule Still Work?

Honestly, it's gotten harder. With the current 30-year fixed mortgage rate at 6.37 percent, the 1% Rule barely produces enough cash flow to cover debt service in most markets. I still use it as a first filter, but I've adjusted my threshold. In today's environment I look for 0.8 percent as the bare minimum just to start considering a deal, and I really want to see properties hit 1 percent or above before I'll get excited. Below 0.7 percent I don't even open the listing.

That said, the 1% Rule is exactly that, a rule of thumb. It doesn't account for property taxes (which vary wildly by state), insurance, vacancy, CapEx, or financing terms. A property in Texas with 3 percent property taxes is a totally different animal than a property in Tennessee with 0.7 percent taxes, even if they hit the same rent-to-price ratio. So once a deal passes the 1% screen, you have to run the actual numbers. That's where the full LandlordCalc calculator comes in.

1% Rule vs 50% Rule vs DSCR

People get these confused. The 1% Rule is a screening tool based purely on rent and price. The 50% Rule is a back-of-envelope estimate that operating expenses run roughly 50% of gross rents. DSCR is an actual financial calculation that looks at NOI versus debt service. They're three different tools for three different jobs. I use the 1% Rule to decide whether to open a listing at all, the 50% Rule to mentally check whether the listed numbers feel right, and DSCR to actually qualify the deal for financing.

When the 1% Rule Lies

The 1% Rule will tell you a property is good when it isn't, in three situations. First, when property taxes are unusually high (think New Jersey, Texas, parts of New York and Illinois). Second, when the insurance is high due to flood zones, hurricanes, or wildfires. Third, when the property has serious deferred maintenance and the CapEx reserve needs to be 15 percent or higher instead of the usual 5 percent. In those cases a property that passes the 1% screen still loses money. Always run the full numbers before you make an offer.

Frequently Asked Questions

What is the 1% Rule in real estate?

The 1% Rule is a quick screening test where you divide a property's monthly rent by its purchase price. If the result is 1% or higher, the property is more likely to generate positive cash flow as a rental. It's a back-of-envelope filter, not a full analysis.

Is the 1% Rule still relevant?

It's still useful as a screening tool, but the threshold has gotten harder to hit at today's mortgage rates. Look for at least 0.8% as a bare minimum and prefer 1% or above. Below 0.7%, the property almost certainly won't cash flow with leverage.

What is the difference between the 1% Rule and the 2% Rule?

Same formula, different threshold. The 2% Rule says monthly rent should be at least 2% of purchase price. That's nearly impossible to find on quality properties today, and properties that hit 2% are usually in C or D class neighborhoods with all the management headaches that come with them.

Does the 1% Rule include property taxes and insurance?

No, and that's its biggest weakness. A property that hits 1% in a low-tax state like Tennessee is very different from a property that hits 1% in a high-tax state like Texas or New Jersey. Always run the full numbers after the screen.

How do I calculate the 1% Rule?

Divide the monthly rent by the purchase price. Example: a $200,000 property renting for $2,000 a month equals 0.01, or 1.0%. The LandlordCalc 1% Rule calculator does this automatically along with seven other return metrics in one screen.