Is the 1% Rule Still Useful?

Last reviewed April 2026

The 1 percent Rule has been around forever. It's the simplest screening tool in rental property investing, and I still use it every time I'm scrolling through listings. But the rule has gotten harder to use literally over the last few years, and a lot of investors are wondering if it's still worth paying attention to. My take: yes, but you have to know what it's actually telling you and what it's not.

Quick Refresher

The 1 percent Rule says monthly rent should be at least 1 percent of the purchase price. So a $200,000 property should rent for at least $2,000 a month. That's it. Nothing fancy, no NOI, no DSCR, no spreadsheet. Just division you can do in your head.

The point of the rule was never that 1 percent guaranteed cash flow. The point was that anything below 1 percent almost certainly wouldn't cash flow once you layered in taxes, insurance, repairs, vacancy, and a mortgage. So 1 percent became the screen: if the property fails this test, don't bother with the deeper analysis. Move on.

Why It's Gotten Harder

When mortgage rates were 3 to 4 percent, the 1 percent Rule worked beautifully. A property hitting 1 percent would generate solid cash flow with 20 percent down because the debt service was so cheap. At today's rate of 6.37 percent, the same property barely breaks even, and at 8 percent rates it's losing money. The rule didn't change. The cost of money changed, and that broke the assumption baked into the rule.

So the practical question becomes: what threshold makes sense at today's rates? My answer is somewhere around 0.8 percent to 1.0 percent for properties with a healthy down payment and reasonable property taxes. If a property hits 0.8 percent in a low-tax state with reasonable insurance, it might still cash flow with 25 percent down. If it's in a high-tax state like Texas or New Jersey, even 1 percent might not be enough. Context matters.

What I Actually Do

I scroll through listings and do the division in my head. Anything below 0.7 percent, I don't even click. Between 0.7 and 0.8 percent, I'll click only if there's something unusually attractive about the property or location. Between 0.8 and 1.0 percent, I open it and run the real numbers. Above 1.0 percent, I'm definitely running the real numbers and probably picking up the phone.

That's the only thing the 1 percent Rule is good for. Filtering. It's not telling me whether the deal works. It's telling me whether the deal is even worth analyzing. Once a property passes the screen, I have to do the actual math because the 1 percent Rule can't see any of the things that make or break a deal: the actual property tax rate, the insurance cost, the condition of the roof and HVAC, the rent versus market, or the financing terms I can actually get.

The Three Times the 1% Rule Lies

Sometimes a property passes the 1 percent screen but the deal is still bad. Three big reasons this happens:

High property taxes. A property in Texas with 3 percent effective property taxes is a totally different animal than the same property in Tennessee with 0.7 percent taxes. The 1 percent Rule doesn't account for that. A $200,000 property renting for $2,000 in Texas is paying $6,000 a year in taxes, which eats most of the cash flow. The same numbers in Tennessee would generate real money.

High insurance costs. Florida, Louisiana, and parts of California now have insurance costs that are 2 to 3 times the national average. A property that hits 1 percent but pays $4,000 a year for insurance instead of $1,200 has a totally different bottom line. The rule can't see that.

Deferred maintenance. A 1980 ranch with original everything passes the 1 percent Rule the same as a renovated 2010 home, but they have wildly different CapEx profiles. The older property might need 15 percent CapEx reserves instead of 5 percent, which changes the math completely.

What to Do When a Property Fails the Rule

Sometimes a property is below 1 percent but you love it for other reasons (great location, appreciation potential, you can add value with a renovation, etc.). Should you still buy? Maybe. The right move is to stop trying to make the 1 percent Rule work and start asking: what return am I actually willing to accept on this deal, and does the property hit it after I run the real numbers?

If you're betting on appreciation, you might accept a 4 to 5 percent cash on cash return because you think the property will be worth 30 percent more in 5 years. That's a totally valid strategy. But you need to be honest with yourself that you're making an appreciation bet, not a cash flow bet, and you need to be able to feed the property out of pocket if the appreciation doesn't show up.

Run the Real Numbers

The 1 percent Rule is the doorman, not the analyst. It decides who gets to come into the room. Once they're in, you have to actually evaluate them. That's where the LandlordCalc rental property calculator comes in. Plug in the actual purchase price, rent, taxes, insurance, financing, and expenses, and you get cap rate, cash on cash return, NOI, DSCR, GRM, and a 5-year ROI projection in about 30 seconds.

The bottom line: the 1 percent Rule still works as a fast filter, but you have to lower your threshold a bit in today's higher-rate environment, and you can never use it as your only check. Use it to save time, then run the real numbers on anything that passes.

Frequently Asked Questions

Does the 1% Rule still work?

Yes, but only as a screening tool, and you have to lower the threshold in higher-rate environments. With current mortgage rates around 6.37%, I look for at least 0.8% as a bare minimum and prefer to see properties hit 1% or higher. Below 0.7%, the property almost certainly won't cash flow with leverage.

Why doesn't the 1% Rule include taxes and insurance?

Because it's designed to be fast and simple, not accurate. The 1% Rule is meant to filter out obvious losers in three seconds. Once a property passes, you have to run the real numbers including property taxes, insurance, vacancy, and CapEx to know if the deal actually works.

What should I do if a property fails the 1% Rule but I like the location?

Run the actual numbers anyway. The 1% Rule is a guideline, not a law. If you're betting on appreciation, you might accept a lower cash flow yield. Just be honest that you're making an appreciation bet and make sure you can feed the property out of pocket if needed.