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1 Percent Rule Formula:
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The 1 Percent Rule is a real estate investment guideline that helps assess rental property viability. It states that the monthly rent should be at least 1% of the property's purchase price to ensure the investment is financially sound.
The calculator uses the 1 Percent Rule formula:
Where:
Explanation: The rule helps investors quickly screen properties to determine if rental income will likely cover mortgage payments and expenses.
Details: This rule provides a quick initial screening tool for real estate investors. Properties meeting this criterion are more likely to generate positive cash flow after accounting for mortgage payments, taxes, insurance, and maintenance costs.
Tips: Enter the expected monthly rental income and the total purchase price of the property. The calculator will determine if the property meets the 1% rule and show the actual rent-to-price ratio.
Q1: Is the 1 Percent Rule always accurate?
A: No, it's a screening tool. Local market conditions, property taxes, insurance costs, and maintenance expenses can affect actual profitability.
Q2: What if a property doesn't meet the 1% rule?
A: Properties below 1% may still be profitable in high-appreciation markets or with lower operating costs, but require more detailed analysis.
Q3: Does this rule account for all expenses?
A: No, it's a gross income guideline. You must still calculate net operating income after all expenses.
Q4: Is this rule applicable in all markets?
A: It works better in some markets than others. High-cost urban areas often have lower ratios, while some rural areas may exceed 1%.
Q5: What's a good rent-to-price ratio?
A: 1% or higher is considered good. Below 0.8% may indicate poor cash flow potential without significant appreciation.