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The 1% rule in real estate
Short answer for 2026: it still works as a quick screen, and only the cheapest metros pass it. Across the 18 metros we track, the leader is Birmingham at about 1.18%, and a few of the lowest-priced Midwest and Southern markets reach a full 1%.
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 Investor Yield Index. Figures are live Zillow data, not lender quotes.
| Metro | Median price | Rent / mo | Rent ÷ price | 1% rule |
|---|
| Birmingham, AL | $122,274 | $1,448 | 1.18% | Misses |
| Memphis, TN | $124,349 | $1,441 | 1.16% | Misses |
| Chicago, IL | $226,376 | $2,266 | 1.00% | Misses |
| Cleveland, OH | $146,863 | $1,461 | 0.99% | Misses |
| Tampa, FL | $236,141 | $2,018 | 0.85% | Misses |
The cheapest Midwest and Southern metros clear a full 1%, while the pricier markets fall short. At current prices most still miss the mark, so the rule works as a filter rather than a guarantee.
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 margin to spare. On 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 and a DSCR
near 1.23, just past the 1.2 minimum most lenders ask for. Below 1%, 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.
Treat it as a 10-second filter, then run the real numbers in the full calculator.
Test a deal
The example below sits just under 1% (rent of $2,200 on a $250,000 price), so you can see how close a near-miss really is.
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 Investor Yield Index, the leader is Birmingham at about 1.18%, and only a few of the cheapest Midwest and Southern markets reach a full 1%. High prices and elevated rates 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.
DSCR