SEO Title: The 1% Rule Is Dead — Here’s What Smart Investors Use Instead
If you’ve spent any time in real estate investing circles, you’ve heard the 1% rule: monthly rent should equal at least 1% of the purchase price. Buy a $100,000 house, rent it for $1,000/month. Simple. Clean. And increasingly useless.
The 1% rule was a useful screening tool when housing prices were low relative to rents — which was true in many markets from 2009 to 2019. But in today’s market, strict adherence to the 1% rule eliminates nearly every deal in most metropolitan areas. If you’re only buying properties that hit 1%, you’re either limited to very specific markets or you’re not buying anything at all.
Here’s what experienced investors are using instead.
Why the 1% Rule Stopped Working
Home prices have risen faster than rents in most markets over the past several years. A property that sold for $100,000 in 2018 might sell for $160,000 today, but the rent only went from $1,000 to $1,200. That’s 0.75% — well below the 1% threshold. Does that make it a bad investment? Not necessarily.
The 1% rule doesn’t account for financing terms, operating expenses, local tax rates, insurance costs, appreciation potential, or the specific market dynamics that make some 0.8% deals better than some 1.2% deals. It’s a blunt tool in a market that requires precision.
What to Use Instead
Cash-on-Cash Return is the metric that matters most if you’re using leverage (a mortgage). It tells you the annual return on the actual cash you invested — not the property’s total value. An 8-12% cash-on-cash return means your money is working harder in real estate than it would in most other investments. This metric factors in your specific financing, which the 1% rule completely ignores.
Debt Service Coverage Ratio tells you how safely the property covers its mortgage. A DSCR of 1.4 means the property earns 40% more than the mortgage payment — giving you a cushion for vacancies, repairs, or rent decreases. This is the metric that tells you whether a deal can survive a bad month.
Net Cash Flow Per Unit is the simplest measure of whether a property pays you or costs you. After every single expense including the mortgage, how much money hits your account each month? Target $150-$250 per unit depending on your market. This number tells you the deal’s real contribution to your financial life.
Total Return includes cash flow plus principal paydown plus appreciation plus tax benefits. A property with modest cash flow in a market appreciating 4-5% annually might deliver a total return above 15% — even though the 1% rule says to pass on it. Investors who only look at cash flow miss half the wealth-building equation.
Market Context Matters
The right metrics depend on the market. In a high-appreciation market like Raleigh or Nashville, you might accept lower cash flow (0.7% rent-to-price ratio) because appreciation and principal paydown make up for it. In a stable cash-flow market like Cleveland or Memphis, you need that cash flow to be stronger (0.9-1.0%+) because appreciation isn’t doing the heavy lifting.
Neither strategy is wrong. But applying the 1% rule to both markets makes no sense — it would reject almost everything in Raleigh and accept almost everything in Cleveland, without considering which deals actually make the most money over time.
The Screening Process for Today’s Market
Instead of a single rule, use a layered approach. Start with a quick rent-to-price ratio as an initial screen — but use 0.7% as the floor, not 1%. Anything below 0.7% is extremely hard to make work with financing. Between 0.7% and 1.0%, run the full analysis. Above 1.0%, analyze but also ask why the ratio is so high — sometimes a high ratio means a rough neighborhood or deferred maintenance.
For every deal that passes the initial screen, run the full numbers: cash-on-cash return, DSCR, net cash flow, and projected total return over a 5-year hold period. This takes longer than checking a single percentage, but it tells you infinitely more about whether the deal actually works.
Tools like the Deal Estimator at Underground Landlord calculate all of these metrics from a single set of inputs. Plug in purchase price, rent, expenses, and financing terms, and you get the complete picture — not just a pass/fail based on an outdated rule of thumb. You can even browse deals other investors have analyzed to see how they’re evaluating properties in different markets.
Rules of Thumb Have Their Place
The 1% rule isn’t worthless. It’s a fast way to filter out deals that are obviously overpriced relative to rent. But treating it as a go/no-go decision tool in 2026 means you’re either missing good deals or limiting yourself to a shrinking pool of properties.
The best investors adapt their analysis to the market. Right now, that means looking beyond a single ratio and understanding the full financial picture of every deal. The math is the same — it just needs to be more thorough.