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The 1% rule in real estate
Short answer for 2026. The 1% rule still works as a 10-second screen, but almost nothing passes it. Of the 18 metros we track live, only 3 clear a full 1%, all cheap Midwest and Southern markets. Birmingham leads at about 1.18%. Everywhere pricier falls short, so use it to reject deals fast, not to approve them.
1% rule: Monthly rent ≥ 1% × purchase price
A $250,000 home needs to rent for at least $2,500 a month to pass. At today’s 6.8% rates, a deal that clears 1% usually also clears the DSCR a lender wants, which is why the rule is a useful first filter.
Where the market actually sits
Rent divided by price for the metros closest to 1%, from the live Investor Yield Index. Figures are Zillow home-value and rent data, not lender quotes.
| Metro | Median price | Rent / mo | Rent ÷ price | 1% rule |
|---|
| Birmingham, AL | $122,274 | $1,448 | 1.18% | Clears |
| Memphis, TN | $124,349 | $1,441 | 1.16% | Clears |
| Chicago, IL | $226,376 | $2,266 | 1.00% | Clears |
| Cleveland, OH | $146,863 | $1,461 | 0.99% | Misses |
| Tampa, FL | $236,141 | $2,018 | 0.85% | Misses |
| Indianapolis, IN | $186,505 | $1,553 | 0.83% | Misses |
Birmingham, Memphis, and Chicago clear a full 1%. Cleveland sits a hair under at 0.99%, and the pricier Sun Belt and coastal metros are not close. That is why the rule rejects most deals on sight but cannot tell you which of the rest cash-flow.
Why 1% is the line
Hitting 1% means yearly gross rent equals 12% of the price. After a typical 40% expense load,
that leaves enough net income to cover the mortgage with room to spare. Take a $250,000 home renting
at $2,500 with 25% down at 6.8%. The math pencils out to roughly a 7.2% cap rate, a DSCR
near 1.23, and about a 4.8% cash-on-cash return after closing costs. The DSCR just clears the 1.2
minimum most lenders ask for. Drop below 1% rent and that cushion disappears fast.
Its blind spots
- It ignores expenses. A 1% property with high taxes or insurance can still lose money.
- It ignores financing. The same price and rent can pass or fail purely on the rate.
- It ignores appreciation. Some sub-1% markets win on long-run price growth.
What to check after the 1% screen. Cap rate for the return on the asset, DSCR for whether a lender will fund it, and cash-on-cash for the return on the money you put in. A deal can pass 1% and still flunk on taxes or insurance, so the 1% rule decides what to look at, never what to buy.
Treat it as a 10-second filter, then run the real numbers in the full calculator.
Test a deal
The example below sits at 0.88%, rent of $2,200 on a $250,000 price. That small gap below 1% is enough to push the DSCR under the 1.2 lender line, so you can see how a near-miss plays out.
Common questions
What is the 1% rule in real estate?
A rule of thumb that monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000 a month to pass.
Does the 1% rule still work in 2026?
It is hard to meet. Across the 18 metros in our live Investor Yield Index, only 3 clear a full 1%. The leader is Birmingham at about 1.18%, all of them cheap Midwest and Southern markets. High prices and the 6.8% mortgage rate keep the rule out of reach in most major markets.
What should I use instead of the 1% rule?
Cap rate, DSCR, and cash-on-cash. The 1% rule is a blunt screen. These metrics account for expenses and financing, which is where 2026 deals live or die.