What Rent-to-price ratio means
A property meets the traditional 1% screen when monthly gross rent is roughly 1% of purchase price. The ratio says nothing about taxes, insurance, condition, financing, vacancy, or capital expenses.
Use achievable market rent rather than an unsupported listing projection.
Decide whether immediate rehab belongs in the denominator and keep that choice consistent across the properties you compare.
Rent-to-price example
- Monthly gross rent: $2,400
- Purchase price: $240,000
Result: $2,400 / $240,000 = 1.0% monthly rent-to-price ratio.
When investors use it
- Quickly screening a large lead list
- Comparing gross rent efficiency in one market
- Identifying deals that deserve full underwriting
- Checking whether price moved faster than rent
Common mistakes
- Calling the ratio cash flow
- Ignoring a large rehab requirement
- Comparing utilities-included rent with tenant-paid-utility rent
- Rejecting an otherwise strong deal solely because it misses an arbitrary threshold
Frequently asked questions
Does the 1% rule guarantee cash flow?
No. A property can meet the rule and still lose money after operating expenses and debt service.
Should rehab be included in the 1% rule?
Many investors compare rent with total basis rather than price alone. Whichever version you use, label it and use it consistently.
Is the 2% rule realistic?
It may appear in lower-price or higher-risk markets, but a higher gross ratio can come with condition, vacancy, management, or neighborhood risks that require deeper analysis.
This guide is educational and does not provide investment, lending, tax, legal, or appraisal advice. Verify inputs and requirements for the specific property, lender, and jurisdiction.
Put the metric inside a complete deal.
PropLurk keeps acquisition inputs, financing, expenses, returns, and the decision record together.