1 Percent Rule Calculator

When investing in rental properties, the 1 Percent Rule is a quick guideline to evaluate whether a property may be a good investment. It states that the monthly rent should be at least 1% of the property’s purchase price. This calculator helps you instantly check if a property meets the rule.

How It Works

The calculator takes the property purchase price and monthly rent amount as inputs. It then computes 1% of the purchase price and compares it to the actual monthly rent. If the rent is greater than or equal to 1% of the purchase price, the property meets the 1% rule.

Formula

1% of Property Price:

$\text{One Percent Value}=\text{Purchase Price}\times 0.01$

Check if Rule is Met:

Example

Inputs:

• Property Purchase Price = $200,000
• Monthly Rent = $2,300

Step 1:
Compute 1% of Purchase Price:

$\text{One Percent Value}=200,000\times 0.01=2,000$

Step 2:
Compare Monthly Rent with One Percent Value:

$2,300\ge 2,000\text{(Yes, meets the rule)}$

Output:

• 1% of Property Price: $2,000
• Does it meet the rule? Yes 

Frequently Asked Questions (FAQs)

Q1: What is the 1% Rule?

A: The 1% Rule is a guideline for real estate investors stating that monthly rental income should equal at least 1% of the property's purchase price to cover expenses and generate positive cash flow. For example, a $200,000 property needs $2,000 in monthly rent. (32 words)

Q2: How do you calculate the 1% Rule?

A: Multiply the property's purchase price by 0.01 to find the minimum monthly rent target. Subtract this from actual rent to assess viability. It helps quickly screen deals but ignores taxes, maintenance, and vacancies. (34 words)

Q3: Is the 1% Rule realistic in today's market?

A: In high-demand areas, it remains achievable for cash-flowing properties, but expensive markets like Seattle often fall short due to rising prices. Investors adapt by focusing on appreciation or using it as a starting filter. (31 words)

Q4: What are the limitations of the 1% Rule?

A: It overlooks operating costs like repairs, insurance, and property management, assuming 50% of rent covers expenses. It's a rough estimate, not a full analysis, and may undervalue long-term appreciation in low-rent areas. (33 words)

Q5: How does the 1% Rule relate to the 50% Rule?

A: The 1% Rule sets rent thresholds, while the 50% Rule estimates expenses at half of gross rent, leaving the rest for profit and debt. Together, they form a basic cash flow projection tool for beginners.