The 1% rule is the most-quoted shortcut in rental investing: monthly rent should be at least 1% of the purchase price. A $200,000 house should rent for ~$2,000. It's useful — but only if you understand what it does and doesn't tell you.
What it's good for
It's a triage filter. When you're scanning dozens of listings, the 1% rule instantly flags which are even worth underwriting. It's fast, requires no expense data, and keeps you from wasting time on properties that obviously won't cash-flow.
Where it breaks down
- High-tax markets: a property can clear 1% and still lose money once property taxes and insurance are in.
- Low-tax, low-price markets: a 0.8% property can cash-flow beautifully when expenses are low and financing is cheap.
- It ignores condition and capex: a property needing a roof and HVAC fails in practice even if it passes on paper.
What to use instead (after the screen)
Once the 1% rule flags a candidate, confirm it with real numbers: cap rate, cash-on-cash return, DSCR, and the actual monthly cash flow after taxes, insurance, vacancy, maintenance and management. The rule gets you to the short list; the full underwrite makes the decision.
CashFlowRE applies the 1% rule and the full underwrite to every listing, so you see the screen and the verdict together. Try it free.