1% Rule Real Estate Calculator
Quickly screen rental property deals, evaluate rent-to-price ratios against the 1% and 2% rules, and find your maximum allowable purchase offer.
How to Use This Calculator
- Enter your property acquisition costs: Input the agreed contract purchase price, any required repair/renovation budget to make the property rent-ready, and estimated closing costs.
- Specify gross monthly rent: Enter the anticipated market rent for the entire property, or switch to the per-unit breakdown if evaluating a duplex, triplex, or fourplex.
- Review the Rent-to-Cost ratio and deal verdict: Check whether your deal achieves the 1% or 2% threshold, review the visual spectrum dial, and inspect the 50% Rule cash flow stress test.
- Solve for your maximum allowable offer (Mode B): If you know what a property rents for, switch to the "Find Max Purchase Offer" tab to calculate the exact ceiling purchase price to offer a seller.
The Formula
The 1% and 2% rules measure the relationship between gross monthly rental income and total capital invested into the real estate deal:
Example Scenario
Consider an investor evaluating a single-family rental property in an expanding Midwestern suburb requiring light cosmetic updates:
| Contract Purchase Price | $185,000 |
| Renovation & Repairs (Paint & Flooring) | $15,000 |
| Acquisition Closing Costs | $5,000 |
| Total Capital Cost Basis | $205,000 |
| Expected Gross Monthly Rent | $2,150 / month |
| Rent-to-Cost Ratio ($2,150 ÷ $205,000) | 1.05% (1% Rule Passed) |
| 1% Rule Target Rent ($205,000 × 1%) | $2,050 / month (+$100 / mo surplus) |
| Gross Annual Rental Yield (1.05% × 12) | 12.59% |
| Estimated Net Monthly Cash Flow (50% Rule @ 6.5% Interest) | +$139.73 / month |
| Screener Verdict | Passes Initial Screen — Move to Full Underwriting |
Because the property's gross monthly rent ($2,150) surpasses 1% of the total acquisition and rehab basis ($205,000), it passes the initial filter and produces a projected net positive cash flow after covering 50% operating expenses and an 80% loan payment.
Frequently Asked Questions
What is the 1% rule in real estate?
The 1% rule is a quick real estate screening metric stating that a rental property's gross monthly rent should equal at least 1% of its total acquisition cost (purchase price plus immediate repair and closing costs). For example, a home costing $200,000 all-in should rent for at least $2,000 per month to pass the initial cash flow screen.
Is the 1% rule still realistic in today's housing market?
In expensive coastal cities and high-demand metros, turnkey properties rarely hit 1%, often trading between 0.5% and 0.8%. However, investors still regularly achieve the 1% rule in the Midwest and Southeast, tertiary markets, small multi-family properties (duplexes and fourplexes), and distressed value-add deals requiring renovation.
How do you calculate the 1% rule on a duplex or multi-family property?
For multi-family properties, combine the gross monthly rent of all units and compare the total against the total acquisition cost basis. For instance, if a duplex costs $240,000 to purchase and renovate, and both units rent for $1,250 each ($2,500 total monthly rent), the property achieves a 1.04% ratio and passes the 1% rule.
What is the difference between the 1% rule and the 2% rule?
The 1% rule requires monthly rent to equal 1% of the total investment basis ($2,000 rent on a $200,000 property), whereas the 2% rule requires monthly rent to reach 2% ($4,000 rent on a $200,000 property). The 2% rule is typically only found in lower-cost, deeply distressed Class C or D neighborhoods, mobile home parks, or specialized student housing.
Does meeting the 1% rule guarantee positive cash flow?
No. The 1% rule is strictly a top-of-funnel screening filter that measures gross rent against acquisition price. It does not account for local property tax rates, high hazard insurance, HOA dues, large vacancy rates, or modern mortgage interest rates. Always follow up a passing 1% rule score with an itemized cash flow and Cap Rate analysis.