One percent rule

Example

A $250,000 house passes the rule if it rents for $2,500 a month or more. At $1,800 a month it reaches only 0.72% and fails. In many high-priced US markets almost nothing passes, so investors there lean on cap rate and cash-on-cash return instead, while in low-priced areas plenty of houses pass and still lose money to repairs and vacancy.

In a listing it looks like…

Single-family home, 3 bed, 2 bath. Asking $250,000. Current lease $2,500 a month through May 2027, meeting the 1% rule.

Good to know

The rule ignores taxes, insurance, repairs and vacancy, which can differ by thousands of dollars a year between two houses with the same rent. A stricter 2% rule exists too, and is rarely met outside the cheapest markets. Treat either as a way to sort listings, then run the real numbers.