The 1% rule is a quick screening heuristic: a rental property should generate monthly rent equal to at least 1% of its purchase price. A $200,000 home should rent for $2,000/month. Simple, memorable — but increasingly difficult to achieve in 2025.
The Math Behind the Rule
The 1% rule originates from an era when the 30-year fixed rate was 6–8% and home prices were lower relative to rents. At 1% monthly rent (12% gross annual yield), a property could comfortably cover mortgage payments, expenses, and still cash flow positively. At today's prices, 1% properties are rare outside of the cheapest markets.
Where the 1% Rule Still Works
| Metro | Typical SFR Price | 1% Monthly Rent Target | HUD 2BR FMR | Achievable? |
|---|---|---|---|---|
| Memphis, TN | $120,000 | $1,200 | $1,050 | Often yes (B-class) |
| Birmingham, AL | $130,000 | $1,300 | $1,100 | Sometimes |
| Cleveland, OH | $115,000 | $1,150 | $975 | Sometimes |
| Indianapolis, IN | $200,000 | $2,000 | $1,360 | Rarely |
| Austin, TX | $425,000 | $4,250 | $1,850 | Never |
The 0.7% Rule for Modern Markets
Many investors have updated the heuristic to 0.7–0.8% for 2025 market conditions: a $350,000 property should achieve $2,450–$2,800/month in rent. This adjusted threshold still screens for positive cash flow in most markets at 20% down and 7% rates.