What is the 7% Rule in Real Estate?

The 7% rule in real estate is a general guideline investors use to estimate whether a rental property may provide a solid return. It suggests that:

The annual gross rental income should be at least 7% of the property’s purchase price.

Example:

• If a property costs $300,000, then it should generate:
  • $21,000 per year in rent (300,000 × 0.07)
  • or $1,750/month

This rule is a quick screening tool — not a replacement for detailed analysis. It doesn't account for expenses like taxes, insurance, repairs, or vacancies. In some markets, especially higher-cost ones, it may be hard to find properties meeting the 7% rule, so investors often adjust their expectations based on location and strategy.