How to use the 1 percent rule calculator
- Enter the property price. Add repairs and closing costs if you want them counted in the price.
- Enter the rent per month you expect to collect.
- Leave the rule percent at 1, or enter another figure such as 2 to test a different version.
- Read the rent as a percent of price, the rent needed to reach the rule, and the highest price your rent would pass at.
Formula
Price used = price + repairs and closing costs
Rent as a percent of price = monthly rent / price used x 100%
Rent needed = price used x rule percent / 100
Highest price at your rent = monthly rent / (rule percent / 100)
The result passes when monthly rent is at least the rent needed. A pass or fail is not a verdict on the investment.
A $200,000 house renting for $1,800
Rent is $1,800 and the price is $200,000, so rent is 0.9% of the price. At 1% the house would need $2,000 a month, which is $200 more than the rent you entered. At $1,800 a month, a price of $180,000 would sit exactly at 1%.
If you add $20,000 of repairs and closing costs the price used is $220,000, rent is 0.8182% of it and the rent needed at 1% is $2,200. Testing the same house against 2% would need $4,000 a month.
A rule of thumb, not a standard
The 1 percent rule is a quick screening idea that some real estate investors use. It says a rental's monthly rent should be at least 1% of the price. Nobody sets it as a fixed threshold, and it works differently in places where prices and rents are far apart.
This tool lets you change the percent so you can see how a stricter or looser version would treat the same property. Treat any passing result as a reason to look further, and a failing one as a prompt to check your numbers.
What the rule ignores
It does not look at property tax, insurance, repairs, vacancies, management, financing or how long you plan to hold. A property that meets the rule can still lose money, and one that misses it can still work.
After screening, run the full numbers with the rental yield calculator, the cap rate calculator and the rental property calculator, which include costs and a loan.
Assumptions and limits
- Rent is the monthly rent you expect to collect from the property.
- The rule percent is whatever you enter. The value of 1 is a rule of thumb that you can test and change.
- The price can include repairs and closing costs if you add them, and is otherwise the purchase price.
- Expenses, vacancies, financing and taxes are not modeled.
Frequently asked questions
What is the 1 percent rule in real estate?
It is a rule of thumb saying monthly rent should be at least 1% of the purchase price. A $200,000 property would need $2,000 of rent a month to meet it.
Is the 1 percent rule reliable?
It is a rough filter and does not measure profit. It skips costs and financing, so use it only to decide which properties deserve a closer look.
What is the 2 percent rule?
It is a stricter version of the same idea, asking for monthly rent of 2% of the price. Enter 2 as the rule percent to see how a property compares.
Should I include repairs in the price?
That is your choice. Adding repairs and closing costs measures the rent against what you really put into the property, which makes the test stricter.