The 1% rule says that a rental property's monthly rent should be at least 1% of its purchase price. A $200,000 property should rent for $2,000/month. Simple, fast, and widely used — but in 2025's market, it needs context.
The 1% Rule Formula
Monthly Rent ÷ Purchase Price ≥ 1%
$2,000 rent ÷ $200,000 price = 1.0% ✓
$1,800 rent ÷ $250,000 price = 0.72% ✗
$2,500 rent ÷ $200,000 price = 1.25% ✓✓
Does the 1% Rule Still Work in 2025?
In most major metro markets: no. High purchase prices make the 1% rule virtually impossible to hit in places like Los Angeles, San Francisco, Seattle, Miami, or New York. In these markets, investors often accept 0.4-0.7% ratios and rely on appreciation rather than cash flow.
In Midwest and Southeast markets (Memphis, Kansas City, Birmingham, Cleveland, Indianapolis): yes, the 1% rule is still regularly achievable, and 1.2-1.5% properties exist.
The real limitation: The 1% rule was created before interest rates hit 7%+. A property that "passes" the 1% rule at today's rates may still deliver negative cash flow. Always run the full analysis — the 1% rule is a screening tool, not a substitute for actual deal analysis. Use the free property analyzer.
What to Use Instead of (or In Addition to) the 1% Rule
- Cap Rate — More accurate than 1% rule. Target 6-8% in today's market.
- Cash-on-Cash Return — Includes your actual financing costs. Target 8%+.
- Full cash flow analysis — Model every expense including vacancy, management, maintenance, and today's mortgage rates.
The 1% rule is a quick filter for screening 100 deals down to 10 worth analyzing. It's not a substitute for the full analysis.
