1% & 2% Rule Screener

The 1% rule says monthly rent should equal at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month to pass. It is a quick screening tool, not a complete analysis. Using all-in cost (purchase + rehab) instead of just price gives a more conservative and realistic hurdle. Many investors use this to sort through dozens of listings before committing to deeper analysis on the best candidates.

Properties meeting the 1% threshold typically generate positive cash flow after covering mortgage, taxes, insurance, and vacancy. In tighter coastal markets where rents are 0.4-0.6% of price, cash flow is minimal and investors rely on appreciation instead. Midwest and Sun Belt markets more often hit 1%, producing stronger cash-on-cash returns. The rule gives a fast signal about whether a market supports cash-flow investing.

Luxury rentals, short-term rentals (Airbnb), and high-appreciation markets (coastal cities) rarely hit 1% because investors accept lower rental yield in exchange for price growth. Commercial properties use cap rate rather than the 1% rule. House hacking and mixed-use properties also break the model. In any of these cases, you need a full pro forma analyzing actual revenue and expenses rather than a single ratio screen.

The 2% rule is a stricter version where monthly rent equals 2% of purchase price. A $100,000 property would need $2,000/month in rent. This was more achievable in 2010-2015 when prices were depressed; today it is extremely rare in most US markets. When you find a deal that appears to meet 2%, it usually signals a low-cost, higher-risk area with vacancy, crime, or deferred maintenance concerns worth scrutinizing carefully.