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Lease 1 Percent Rule:
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The Lease 1 Percent Rule is a real estate investment guideline that suggests monthly rental income should be at least 1% of the property's purchase price. This rule helps investors quickly assess whether a rental property is likely to generate sufficient cash flow.
The calculator uses the 1 Percent Rule formula:
Where:
Explanation: The rule provides a quick screening method to determine if a rental property has the potential to generate adequate rental income relative to its cost.
Details: This rule helps real estate investors quickly filter properties that may not generate sufficient cash flow. Properties meeting this rule are more likely to cover expenses and provide positive cash flow.
Tips: Enter the expected monthly rent and the property's purchase price in dollars. The calculator will determine if the property meets the 1% rule and show the difference between actual rent and the 1% threshold.
Q1: Is the 1 Percent Rule always accurate?
A: No, it's a screening tool, not a definitive measure. Local market conditions, property taxes, maintenance costs, and other factors should also be considered.
Q2: What if a property doesn't meet the 1 Percent Rule?
A: Properties below the 1% threshold may still be good investments if they have strong appreciation potential, low operating costs, or other favorable factors.
Q3: Does this rule work for all property types?
A: The rule works best for single-family homes and small multi-family properties. Commercial properties and luxury rentals may have different metrics.
Q4: Should I only consider properties that meet this rule?
A: While it's a good screening tool, experienced investors may consider properties below this threshold if they offer other advantages like location, development potential, or tax benefits.
Q5: How does this compare to the 2% rule?
A: The 2% rule is more conservative and harder to achieve in many markets. The 1% rule is more commonly used as a practical screening threshold in today's market conditions.