Guide · Updated September 2026
Leer en españolThe 1%, 50% and 70% rules, tested on a real deal
Three rules of thumb investors use to screen rentals, run on one property and checked against the real numbers.
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Investors use three quick rules to decide whether a rental deserves a full analysis: the 1% rule, the 50% rule and, for fixer-uppers, the 70% rule. They are screens, not verdicts. This guide runs all three on one property and then checks them against the real numbers.
The example property
A $180,000 single-family rental that rents for $1,950 a month. You put 25% down, borrow $135,000 at 7% for 30 years and pay $5,000 in closing costs. The mortgage payment (principal and interest) is $898 a month.
The 1% rule
$1,950 ÷ $180,000 = 1.08%. It passes.
What it is good for: throwing out obviously overpriced listings in ten seconds. Where it fails: it ignores property taxes, insurance, interest rates and appreciation. In many higher-cost markets, solid long-term rentals rent for well under 1%, and in some low-cost areas a property can pass the 1% rule and still lose money because of taxes and repairs.
The 50% rule
Half of $1,950 is $975 of estimated expenses, leaving $975 a month before the mortgage. Subtract the $898 payment and the 50% rule predicts about $77 a month of cash flow.
Checking the 50% rule against real numbers
| Monthly expense | Amount |
|---|---|
| Property tax ($3,600 a year) | $300 |
| Insurance ($1,500 a year) | $125 |
| Maintenance (8% of rent) | $156 |
| Capital expense reserve (5%) | $97.50 |
| Property management (8% of collected rent) | $148 |
| Vacancy (5%) | $97.50 |
| Total | $924 |
| As a share of rent | 47.4% |
Here the itemized expenses came to 47.4% of rent, close to the 50% estimate, and the real cash flow is about $128 a month. The rule worked for this property. It will not always:
- High property taxes. In states like Texas, taxes alone can be 2% or more of the value each year.
- Older homes need more for repairs and big-ticket replacements.
- Owner-paid utilities or an HOA push expenses above 50%.
- Low-rent properties often have higher expenses as a share of rent, since a roof costs about the same whether rent is $900 or $1,900.
The 70% rule (for fixer-uppers)
For a house worth $240,000 after $35,000 of repairs: $240,000 × 0.70 − $35,000 = $133,000. The 30% cushion is meant to cover buying and selling costs, loan costs, holding costs and profit. It is most common with flips and the BRRRR method.
What the rules miss
Our example passes the 1% rule and the 50% rule, yet it only returns about 3.1% cash-on-cash: about $1,530 a year of cash flow on $50,000 of cash invested. That may or may not be worth it once you count loan paydown and appreciation, but no rule of thumb would have told you. That is why the next step after a quick screen is always a full analysis with real taxes, insurance quotes and your actual loan terms.
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Questions
Is the 1% rule still realistic?
In many markets, not for typical single-family homes at today's prices. Treat it as a quick filter. A property below 1% can still work, and one above 1% can still lose money.
What does the 50% rule include?
Property tax, insurance, maintenance, capital expense reserves, vacancy, management, HOA and owner-paid utilities. It does not include the mortgage payment.
What is a good cash-on-cash return?
It depends on your goals and your other options. Many investors look for high single digits or better from cash flow alone, while others accept less in exchange for expected appreciation.
Should I use these rules to make an offer?
Use them to decide which properties deserve a closer look. Make offers from a full analysis with real numbers.
Educational content, not financial, tax, legal or investment advice. Examples use made-up numbers. Check rates, taxes and loan terms with your own sources.