Deal Analysis
The 1% Rule Is a Sanity Check, Not a Strategy
Why the 1% rule screens out bad deals but never tells you whether a good one actually cash flows after debt service.
What the rule actually measures
Monthly rent at or above 1% of the purchase price is a quick screen that a market is not wildly overpriced relative to rents. It says nothing about your interest rate, your taxes, your insurance, or the age of the roof. Two identical 1% deals can produce positive cash flow in one market and a loss in another.
Run the full cash flow after the screen
Once a deal passes the 1% screen, plug realistic vacancy, management, maintenance, and reserve figures into a full cash flow analysis. The screen got you to look; the analysis decides whether you write an offer.
- Vacancy: 5-8% of gross rent in stable markets.
- Management: 8-10% of collected rent, even when self-managing.
- Maintenance and reserves: 10-15% of gross rent combined on older stock.
- Debt service at your actual quoted rate, not a round number.
When the rule misleads
In high-appreciation, low-yield coastal markets the 1% rule has been absent for a decade and deals still made sense for investors betting on equity growth. In cash-flow markets it can be too generous when insurance or taxes are climbing fast. Treat it as a floor for attention, not a verdict.
Key takeaways
- The 1% rule screens; the cash flow analysis decides.
- Charge management and reserves even when you self-manage.
- Local expense trends break the rule faster than rent trends do.
Editorial Team
Rental Property Lab Editorial Team
Rental Property Lab Editorial Team creates practical educational resources, calculators, comparisons, and guides for rental property owners. Our content focuses on rental management, maintenance, improvements, products, and property financial analysis.
About the editorial team