The 1% Rule is a “back of the napkin” type calculation for real estate investors to quickly analyze a property on the go.
The 1% Rule states that for an investment property to be profitable, it should rent for at least 1% of its purchase price. For example, that means that if we were purchase an investment property for $100,000, it would need to collect at least $1,000 per month in gross rent to be considered ‘profitable’.
Many investors scoff at the 1% rule, because it takes very little real calculation into account.
The 1% Rule should only be used as a quick spot-check as to whether or not a property could be considered profitable, and then a deeper analysis should be performed afterwards.
In addition, because there are so many different variables that go into property profitability (such as purchase price, down payment, property taxes, insurance, etc), this analysis metric should only be used as a generality.