Deal Screening & the 1% Rule

The 1% Rule and the 50% Rule are practitioner conventions — nobody publishes them and no study establishes them. They're still worth knowing, because their job is to let you dismiss a listing in ten seconds rather than to tell you what to buy.

Last verified 2026-07-21

A filter, not a verdict

Someone looking at rental property may see hundreds of listings and can only underwrite a handful properly. Screening rules exist to make that triage fast — they are deliberately crude, and their crudeness is the feature.

The 1% Rule says monthly gross rent should be at least 1% of the purchase price. A $200,000 property should rent for $2,000. The 50% Rule says operating expenses will run roughly half of gross rent over the long term, once vacancy, repairs, management and capital reserves are included.

Be clear about what these are. No regulator publishes them, no research establishes them, and they emerged from investors comparing notes. Whether 1% is achievable at all depends heavily on the market and the era — in many expensive metros almost nothing clears it, which tells you about local price-to-rent ratios rather than about your competence.

The number the lender screens on

You screen deals with rules of thumb. A lender screens them with debt service coverage ratio — NOI divided by annual debt service. A DSCR of 1.0 means the property's operating income exactly covers the loan payments and nothing more.

Lenders set their own minimums, commonly somewhere around 1.20–1.25x on investment property. That isn't a published standard, and it moves with the lender, the asset type and the credit environment.

It's worth computing before you apply, for a reason beyond approval: DSCR is the honest measure of how much room the deal has. At 1.25x, a 20% drop in NOI takes you to break-even — which is roughly what one extended vacancy plus a major repair looks like in a single year. The margin the lender wants is a margin you want too.