Property Analysis

1% Rule

A quick screening heuristic: monthly rent should be at least 1% of the purchase price to support positive cash flow.

The 1% Rule is a back-of-envelope test used to quickly screen deals before doing detailed analysis. If monthly rent ≥ 1% of purchase price, the property is likely to generate positive cash flow at conventional financing terms.

1% Rule: Monthly Rent ÷ Purchase Price ≥ 1%

Examples:

$200,000 property → needs $2,000+/month rent to pass
$350,000 property → needs $3,500+/month rent to pass

Limitations: The 1% Rule is a screening tool only, not an investment decision. It doesn't account for property taxes, HOA fees, actual expenses, or local cap rates. Always run full numbers before making an offer.

Related Terms

Gross Rental Yield

Annual gross rent as a percentage of purchase price — a quick cross-market comparison metric.

Rent-to-Value Ratio

Monthly rent divided by purchase price — the basis of the 1% Rule screening metric.

50% Rule

A quick estimating heuristic: assume 50% of gross rents go to operating expenses before mortgage payments.