One percent rule
By Jude Wallis
The one percent rule is a rental property screen that asks whether monthly rent is at least 1 percent of the purchase price. It is a filter, not a measure of return.
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Its whole value is speed. Rent divided by price gives a percent that can be checked against a listing in seconds, which is what a shortlist needs. Nothing in it is a claim about profit.
What sits outside the rule is everything that decides whether a property pays: property taxes, insurance, vacancy, management, repairs and the mortgage. A property can clear 1 percent and still lose money every month, and a property in a low-tax area can miss the rule and cash flow well.
Annualise it and the same fraction becomes a gross rent multiplier, which is the identical screen written as a multiple. The one percent rule calculator is the percent, and how rental cash flow works is the arithmetic the screen skips.