The 1% rule (and the 2% rule), explained
The 1% rule says a rental's monthly rent should be at least 1% of its purchase price. It is a fast first filter, not a full analysis. The 2% rule is a stricter version that is largely outdatedin today's market, where prices have outrun rents.
The 1% rule is the fastest screen in real estate. It will not tell you whether a deal is good, but it tells you in two seconds whether a deal is worth a second look.
What is the 1% rule?
A $200,000 property would need to rent for at least $2,000 a month to pass. Most investors today accept a rent-to-price ratio of roughly 1% to 1.5%, depending on strategy and market.
The 1% rule vs the 2% rule
| Rule | Rent on a $200k home | Reality in 2026 |
|---|---|---|
| 1% rule | $2,000/mo | Realistic modern screen. |
| 2% rule | $4,000/mo | Largely outdated, rare and often unaffordable to tenants. |
What the rule is really for
It helps you skim a long list of listings and decide which deserve real underwriting. Clearing it is a promising sign. Missing it is a reason to dig in, not an automatic no, especially in appreciation markets where almost nothing hits 1%.
Why it is only a starting point
The rule ignores expenses, interest rates, taxes, condition and vacancy. Plenty of properties pass the 1% rule and still lose money once you run the real cash flow, and plenty that miss it are fine buys. Treat it as the first gate, never the finish line.
Frequently asked questions
What is the 1% rule in real estate?
It is a quick screen: a rental's monthly rent should be at least 1% of its purchase price. A $250,000 property would need about $2,500 a month to pass.
Is the 2% rule still realistic?
Rarely. Prices have outrun rents, so 2% deals are very hard to find in most US markets, and 2% rents are often unaffordable to tenants. Treat the 1% rule as the realistic modern benchmark.
Does the 1% rule account for expenses?
No. It looks only at rent versus price. It ignores taxes, insurance, maintenance, vacancy and financing, which is why it is a screen rather than an analysis.
Should I avoid a property that fails the 1% rule?
Not necessarily. Many strong deals in appreciation markets miss the 1% rule. If the property pencils out on a full cash-flow and cap-rate analysis, it can still be a good buy.