1% Rule / 2% Rule Rental Screening Calculator
Investment property loans usually need 20–25%
50% rule: taxes, insurance, repairs, vacancy and management eat about half the rent
Rent-to-price ratio
0.90%
Below the 1% rule, which asks for $2,000 a month. Gross yield 10.8% a year.
Quick cash-flow check (50% rule)
−$98 a month
| Rent | $1,800 |
|---|---|
| Operating expenses at 50% | −$900 |
| Net operating income | $900 |
| Mortgage P&I (25% down, 7%) | −$998 |
| Cash flow | −$98 |
Cap rate 5.40% · cash-on-cash -2.4% on $50,000 down. On these assumptions the property breaks even at a price of about $180,369.
Both rules are first-pass filters for deciding which listings deserve a full analysis. The 1% rule is hard to meet in expensive markets where investors rely more on appreciation, and at today's mortgage rates a property can pass it and still lose money each month. Run the rental property cash-flow calculator with real taxes, insurance and vacancy before making an offer.
Screen a rental property with the 1% and 2% rules, then check the cash flow with the 50% rule and a real mortgage payment. The calculator also gives the gross yield, cap rate, cash-on-cash return and the price at which the property would break even.
Formula
Worked Example
The 1% rule asks for $2,000 a month on a $200,000 property. Half the $1,800 rent goes to expenses, leaving $900 of NOI, and the $150,000 mortgage costs $998 a month, so the property loses $98 a month before any appreciation.
Frequently Asked Questions
What is the 1% rule in real estate?
A quick screen that says a rental's monthly rent should be at least 1% of its purchase price plus repairs: $2,000 a month for a $200,000 house. The 2% rule is the stricter version. They are filters for deciding which listings deserve a full analysis, not proof of a good deal.
What is the 50% rule?
A rule of thumb that operating expenses (property tax, insurance, repairs, capital replacements, vacancy and management, but not the mortgage) take about half of the rent. What is left is net operating income, from which the mortgage is paid.
Is the 1% rule realistic today?
In many expensive coastal markets rents are 0.4–0.7% of price, so almost nothing passes, and investors there rely more on appreciation. With mortgage rates near 7%, even a property that meets the 1% rule can lose money each month, which is why the cash-flow check matters.