The 1% Rule: A Quick Filter for Rental Property Investments
Discover how to quickly screen potential rental properties using this time-tested rule of thumb.
The 1% rule is a quick screening tool that helps investors determine if a rental property warrants further investigation. According to this rule, a property's monthly rent should be at least 1% of its purchase price.
For example: - Purchase Price: $200,000 - Minimum Monthly Rent (1% rule): $2,000
If the property rents for less than $2,000/month, it may not generate sufficient cash flow to justify the investment.
Keep in mind: - The 1% rule is a screening tool, not a guarantee of profitability - In competitive markets with high appreciation, properties may not meet this rule but still be good investments - Always conduct thorough due diligence including detailed cash flow analysis - Some investors use a 2% rule in emerging markets or a 0.7% rule in high-cost areas
The 1% rule helps you quickly filter through listings and focus on properties with better cash flow potential. However, never skip comprehensive financial analysis before making an investment decision.