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The 1% rule vs. real cash flow

Updated October 20, 2026 · by ROW Home Solutions

The 1% rule says a rental's monthly rent should be at least 1% of its purchase price. A $200,000 property would need $2,000 a month. It's a fast filter for scrolling listings, and that's all it is.

Why it's useful

It takes five seconds and quickly flags properties where rent is far too low for the price. If a listing misses by a mile, you can skip it.

Where it misleads

• It ignores your interest rate. The same property can cash flow at one rate and lose money at another.
• It ignores taxes and insurance, which vary a lot by state and county.
• It ignores HOA dues, age and condition. An older home that passes 1% may need a roof.
• It ignores your down payment. More down means a smaller payment.
• In many higher-priced markets, almost nothing passes, yet some of those deals may still fit a long-term plan. And in some markets, properties pass because of higher risk.

Real cash flow

Monthly cash flow = rent
 − principal & interest − taxes − insurance − HOA
 − vacancy − repairs − capex − management

Use real comps for rent, a real rate quote, the actual tax bill, and an insurance quote. Then look at cash-on-cash return (yearly cash flow ÷ cash you put in) to compare deals.

Bottom line

Use the 1% rule to decide what to look at. Use real cash flow, and your own reserves, to decide what to buy.