The 1% rule is a quick gut-check for rentals: a home's monthly rent should be at least 1% of its price. If it clears that bar, it is worth a closer look.
Why a rule of thumb helps
When you start hunting for a rental, the listings pile up fast. You cannot run full math on every single one — you would never finish. A rule of thumb is a shortcut that sorts the maybes from the nos in a few seconds, so you can spend your real effort on the handful that look promising. The 1% rule is the most popular shortcut because it uses only two numbers you already have: the price and the likely rent. No spreadsheet needed.
The formula
Take the price and multiply by 0.01 (that is 1%). If the expected monthly rent is equal to or above that number, the home passes the rule.
In short: monthly rent ≥ price × 1%.
A worked example
Say a home is priced at 150,000.
- 1% of 150,000 = 1,500.
- If it can rent for 1,600 a month, it passes (1,600 is above 1,500).
- If it can only rent for 1,200 a month, it fails (1,200 is below 1,500).
That is the whole rule. It takes about five seconds per home.
Why people use it
The 1% rule is a fast filter. When you are scrolling through dozens of homes, it helps you skip the ones that clearly will not earn enough rent for their price, so you can focus on the promising ones.
Where it falls short
The 1% rule is rough on purpose. It ignores property tax, insurance, repairs, and your mortgage. A home can pass the 1% rule and still lose money each month if its costs are high. And in some areas, almost nothing hits 1% — that does not mean those homes are all bad buys. Treat it as a first screen, then do the full math on any home that passes.
The fix is simple: once a home clears the 1% bar, move on to the deeper numbers. Work out the true monthly cost, the cap rate, and the cash-on-cash return before you decide. The 1% rule gets you a short list fast; those other numbers tell you whether the short list is any good. Used together, they save you time without letting a weak deal slip through.
How Underlisted helps
You do not need a calculator app for this. The 1% rule is one of our free calculators, and our Deal Score already weighs rent against price for you. You can check any home free and let us do the first screen automatically.
Takeaway: monthly rent should be at least 1% of the price. It is a fast filter, not the final word.