What's the 1 percent rule

[Adam Avinger]

I've heard a few references to a 1% or 3% rule, and haven't found anything (yet) on the site, detailing what it is, and how I would go about using that metric to size up my investments?

[Craig Fitzsimmons]

It is referring to the ratio of the purchase price to the monthly rent. For example, if you're going to rent a SFH for $1250 per month, the 1% rule says you shouldn't pay more than $125,000. Many experts still use this as a guide, but others will tell you it's very tough to find those scenarios and it was more common in the 1990s. I try to use it as a guide, but your full financial analysis should tell you to act on a property or not.