Can someone define the 1% Rule? What is the math on that?

Question

How do you calculate the 1% in the One-Percent Rule?

Dawn Brenengen · Answer

@Robert Raffalo It's just a rule of thumb to be able to quickly judge whether a property might make sense.  The closer to 1%, the better, and higher is even better, but you still want to run numbers on individual properties.  Things like property taxes and HOA fees can greatly skew whether a home makes sense.  the 1% rule is just a quick way to decide whether a home deserves deeper analysis.

Jason D. · Answer

Correct! A "1%" property is negative cash flow for me. When I run numbers, i run them as 100% financed, that way i know there is enough cushion and that the property truly makes money. Any property will cash flow if you pay cash, but that doesnt make it a good investment.

Robert Raffalo · Answer

@Jason DiClemente - when you say, “doesn’t make money” do you mean negative cash flow?

Robert Raffalo · Answer

@Jason DiClemente - what about closing coats and any rehab expenses prior to renting the property for the first time?  And, would you ever so a deal if the math only comes out to .95 or.98?

Jason Hirko · Answer

When I was doing rehabs to rent, I'd calculate monthly rent equals 1% of total cost. It's just a super quick way to get a feel for how decent of a rental a property would make at a glance.

Can someone define the 1% Rule? What is the math on that?

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