How the 1% Rule Works
The 1% rule is the rental investor's quickest gut check. The test is simple: monthly rent divided by your all-in basis (purchase price plus rehab) should equal at least 1%. Rather than running a full pro forma on every listing, you can scan dozens of properties and instantly toss the ones whose rents are too thin to bother analyzing.
This calculator does the math three ways. It shows your actual rent-to-price ratio, the rent you would need to pass at your chosen target, and the maximum price you could pay and still satisfy the rule at the rent you expect. That last number is especially useful when you are deciding how high to offer.
Worked Example
Say a property is priced at $150,000 and needs no rehab. At a 1% target, you need $1,500 in monthly rent to pass. If the market rent is exactly $1,500, your ratio is 1.00% and the deal passes. If comparable units rent for only $1,250, your ratio is 0.83%, the deal fails the 1% screen, and you would need to negotiate the price down to about $125,000 to make the rule work at that rent.
Now add $20,000 of rehab. Your basis becomes $170,000, the required rent rises to $1,700, and a $1,500 rent no longer clears the bar. Including rehab keeps the rule honest about what the deal actually costs you.
Practical Tips
Calibrate the target to your market. Set the rule to 0.8% in expensive metros or 1.2% to 1.5% where you want strong cash flow. The tool lets you change the percentage so the screen fits your strategy.
Use it to anchor offers. The max-price output tells you the highest all-in basis that still works at the rent you expect, which is a clean starting point for negotiation.
Always follow up with a full analysis. Passing the rule is the beginning, not the end. Run vacancy, taxes, insurance, maintenance, and debt service before you commit capital.