GRM and the 1% Rule: Same Screen, Different Units, and Where It Stands Now
The 1% rule says monthly rent should be 1% of price. That is a GRM of 8.3. Where the rule came from, what it implies for cap rate and cash flow, why it became hard to meet, and the screens investors use instead.
By the GRMCalculator.com team · Published September 5, 2026
The 1% rule says a rental’s monthly rent should be at least 1% of its purchase price. A $300,000 property should rent for $3,000. It is a gross rent multiplier of 8.3 written in monthly units, and everything true of GRM is true of the rule.
The rule is a screen for cash flow. Under typical expenses, a property at 1% produces a cap rate around 7.3%, which is roughly where a rental covers a 30-year mortgage with 25% down at 7% rates. Below 1%, cash flow gets thin fast. Above it, there is margin.
The conversion
Monthly rent as a percent of price, gross yield, and GRM are one fact in three units:
| Monthly rent / price | Gross yield | GRM | Implied cap rate |
|---|---|---|---|
| 2.0% | 24% | 4.2 | 14.6% |
| 1.5% | 18% | 5.6 | 10.9% |
| 1.0% | 12% | 8.3 | 7.3% |
| 0.8% | 9.6% | 10.4 | 5.8% |
| 0.7% | 8.4% | 11.9 | 5.1% |
| 0.5% | 6% | 16.7 | 3.6% |
Implied cap rates assume 5% vacancy and expenses at 36% of collected rent. The GRM formula guide covers the arithmetic.
Where the rule came from
Investors in the early 2010s could find properties at 1% and often 1.5% or 2% in many US markets, because prices had fallen further than rents after 2008. At 4% mortgage rates, a property at 1% produced strong cash flow. The rule spread as a quick way to reject listings that could not.
As prices recovered faster than rents through the 2010s, the share of listings meeting 1% shrank every year. By 2021 it was rare outside low-cost markets. Rate increases in 2022 made the math worse: the same 1% property that cash flowed comfortably at 4% barely does at 7%.
What the rule gets right
It is fast. Price and rent are on the listing.
It is roughly calibrated. Under normal expenses, 1% is close to the line where a financed property covers itself at today’s rates. That is not a coincidence; the rule survived because it worked.
It prevents the worst mistakes. A buyer who refuses everything under 0.7% will not end up with a property that loses $800 a month.
What the rule gets wrong
Everything GRM gets wrong. It ignores taxes, insurance, HOA dues, vacancy, condition and management. A condo at 1% with $400 in dues is a house at 0.85%. A property at 1% in a 2.2% property tax state is a property at 0.85% in a 0.6% tax state. The GRM vs cap rate guide covers each case.
It also ignores what the rent is buying. A property at 1.5% in a declining town with 15% vacancy is not a better investment than one at 0.9% in a growing suburb. The rule cannot see the difference.
What replaced it
Most investors now screen in one of three ways.
A lower threshold. 0.8% or 0.7%, accepting that cash flow will be thin or negative at 25% down and planning to put more down, buy in cheaper markets, or wait for a refinance.
A cap rate floor. Build the NOI and require a cap rate above the loan’s annual cost, about 8.2% at 7.25% over 30 years. This is stricter than 1% in high-tax markets and looser in low-tax ones, which is the point.
A cash flow test. Model the actual property with the actual loan and require positive cash flow after reserves. Slower, and the only one of the three that answers the real question. Lenders run their own version of it as a debt service coverage ratio, which the DSCR loan calculator computes.
Using the rule today
Use it the way it was meant: as a first filter, with the threshold adjusted for your market. If nothing in your area clears 1%, the rule is telling you that financed cash flow is not available there at current prices, and that your return will come from appreciation. That is useful to know before you buy.
Then move to the full expense math for anything that survives. The calculator shows rent-to-price, GRM and the implied cap rate on every run, and flags whether the property meets the 1% rule. The GRM pages show what each multiplier means in rent and cash flow.
Frequently asked questions
What is the 1% rule in real estate?
A screen that says a rental's monthly rent should be at least 1% of its purchase price. A $300,000 property should rent for $3,000 a month. It is the same test as a gross rent multiplier of 8.3, and under typical expenses it corresponds to a cap rate near 7.3%.
Is the 1% rule still realistic?
In most large metros, no. Rent-to-price ratios of 0.5 to 0.8% are typical there. Properties meeting the 1% rule are still found in lower-cost Midwest and Southern markets, in small multifamily, and in older or rougher housing stock.
What is the 2% rule?
The same idea at twice the bar: monthly rent at 2% of price, a GRM of 4.2. It was quoted in very cheap markets in the early 2010s and is almost nonexistent now outside distressed property. Treat any listing that meets it as a prompt to check the rent and the neighborhood.
What is the 0.8% rule?
A loosened version some investors adopted as the 1% rule became unattainable. Monthly rent at 0.8% of price is a GRM of 10.4 and implies a cap rate near 5.8%, which does not cover a 30-year loan at 7% rates with 25% down. It screens for typical, not for cash flow.