When it comes to evaluating rental properties, the 1% rule is one of the simplest tools in a real estate investor’s toolbox. It’s quick, it’s easy, and it helps filter out properties that just don’t make financial sense—especially in fast-moving or expensive markets.
Whether you’re a seasoned investor or just starting out, here’s how to make the most of the 1% rule and use it to build smarter, cash-flow-positive investments.
💡 What Is the 1% Rule in Real Estate?
The 1% rule states that a rental property’s monthly rent should be at least 1% of the purchase price.
Example:If a home costs $350,000, you’d want it to rent for at least $3,500/month to meet the 1% rule.
This helps determine whether a property has the potential to generate positive cash flow—a key metric for any buy-and-hold investor.
📝 Keep in mind: This rule doesn’t account for expenses, taxes, or financing costs. It’s a screening tool, not a full analysis.
1. Use It as a Quick Property Filter
When you’re browsing dozens (or hundreds) of listings, the 1% rule can help you weed out low performers fast. If a property’s rent is nowhere near 1% of the purchase price, it might not be worth pursuing—unless you’re banking on appreciation or major renovations.
Pro tip:Use this rule to narrow your shortlist before running a full cash flow analysis.
2. Guide Your Offer Strategy
If you’re eyeing a property that’s close to the 1% threshold but slightly off, the rule can support your negotiation strategy.
Example:If a $500,000 property only rents for $4,000/month (0.8%), you may want to offer closer to $400,000 to hit that 1% sweet spot—or walk away knowing it won’t cash flow without improvements.
3. Assess Market Strength and Trends
The 1% rule can help you compare cities, towns, or even neighbourhoods. Some regions consistently hit 1% or higher, while others—especially hot urban areas—may fall well below. That’s not necessarily bad, but it tells you whether a market is cash-flow or appreciation-focused.
On Vancouver Island, certain inland or secondary communities may meet the 1% rule more easily than high-demand coastal spots.
4. Set Cash Flow Expectations
The rule also helps align expectations if you’re new to investing. It lets you reverse-engineer your monthly income needs. If you want to earn $3,000/month in rental income, you’ll likely need three $300,000 properties that rent for $3,000 each (or equivalent combinations).
It’s a great benchmark for goal setting.
5. Balance Your Portfolio
As you grow your real estate portfolio, not every property will meet the 1% rule—and that’s okay. Some might be long-term appreciation plays. Others could be cash cows that meet or exceed 1%. The key is using the 1% rule to ensure you have a healthy balance of income and equity growth.
Final Thoughts
The 1% rule is not a hard-and-fast requirement—but it’s a fantastic first filter. If a deal passes the 1% test, it’s worth diving deeper. If it doesn’t, ask yourself if there’s another compelling reason to proceed.
Need help running the numbers on an investment property? I can help you assess rent potential, cash flow projections, and whether it’s the right fit for your portfolio goals.
🔍 Let’s Chat:Thinking of investing on Vancouver Island? Let’s find out what kind of properties meet (or beat) the 1% rule in today’s market.