InvestingAll terms starting with a number
1% rule
Also called: one percent rule
A screening heuristic that monthly rent should be roughly one percent of purchase price.
The 1% rule is a back-of-envelope filter for deciding which listings deserve a real analysis. It is a triage tool, not an underwriting standard.
It has become harder to satisfy in appreciating markets, and it ignores expenses entirely, so properties that pass can still lose money and properties that fail can still be sound.
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Related terms
- 50% ruleA rough assumption that operating expenses will consume about half of gross rent, excluding the mortgage.
- GRM (Gross Rent Multiplier)Property price divided by annual gross rent, a fast screening ratio that ignores expenses.
- Cash flowWhat remains each month after rent has covered operating expenses and debt service.
- Cap rate (Capitalization rate)Net operating income divided by property value, the unlevered yield used to compare properties.
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