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The 1% rule and the 50% rule

By Cedrick Reese · Updated August 9, 2026

Rules of thumb exist to save you time, not to make the decision for you. The 1% rule and the 50% rule are two of the most repeated in real estate. Both are useful as fast first filters. Both fall apart if you lean on them too hard. Here's how to use each one honestly.

The 1% rule

The 1% rule says a property's monthly rent should be at least 1% of its purchase price. A $250,000 property would need to rent for about $2,500 a month to pass. It's a five-second gut check on whether rent is high enough relative to price to have a shot at cash flow.

The catch: in many markets, especially higher-priced coastal metros, very few properties clear 1% anymore. That doesn't automatically make them bad investments, it just means the 1% rule filters out most of the market and leans toward cheaper, higher-yield areas. Treat a miss as "look closer," not "walk away."

The 50% rule

The 50% rule says that, over time, operating expenses will run about half of a property's gross rent, before the mortgage. So on $2,000 of monthly rent, you'd estimate roughly $1,000 in operating costs (taxes, insurance, maintenance, management, vacancy) and about $1,000 of NOI, then subtract the mortgage from there.

Its real value is as a reality check. New investors chronically underestimate expenses, and the 50% rule pushes back on the optimistic "rent minus mortgage" math that gets people into bad deals. Note what it excludes: it's operating expenses only, so the mortgage payment still comes out afterward, and it doesn't neatly separate capital expenditures.

Where both rules break down

Every property is different. The 50% rule assumes a uniform expense ratio that won't match an old building with deferred maintenance or a newer one under warranty. The 1% rule ignores expenses and financing entirely. Age, condition, location, and management style all move the real numbers around. These rules are screens for deciding what deserves a full analysis, nothing more.

How to actually use them

• Use the 1% rule to quickly sort a long list of listings.
• Use the 50% rule to sanity-check your expense assumptions before you get attached to a deal.
• Then run the real numbers. A property that passes both rules can still lose money, and one that fails the 1% rule can still work.

The Rental Property Calculator shows the 1% rule result automatically and lets you enter real, itemized expenses instead of relying on the 50% shortcut.