Real estate investing is full of percentage-based rules of thumb that investors use to quickly assess deals. While these aren't hard-and-fast rules, they can serve as useful filters or benchmarks. Here's a breakdown of the most commonly cited ones:
| Rule |
Description |
Purpose |
| 1% Rule |
Monthly rent should be at least 1% of the purchase price. E.g., $150,000 property should rent for $1,500/mo. |
Quick cash flow filter. |
| 2% Rule |
Rent should be at least 2% of the purchase price. Mostly only achievable in lower-cost markets. |
Aggressive cash flow target. |
| 0.5% Rule |
Conservative version of the 1% rule for expensive markets. E.g., $500,000 property should rent for $2,500/mo. |
Used where appreciation is prioritized over cash flow. |
| 50% Rule |
Estimate that 50% of rental income will go to expenses (excluding mortgage). |
Used to quickly estimate net operating income (NOI). |
| 70% Rule |
For flips: Only pay up to 70% of ARV (After Repair Value) minus repair costs. |
Used by house flippers to ensure profit margin. |
| 75% Rule |
Similar to 70%, but sometimes used in hotter markets. |
A looser version of the 70% rule. |
| 80% LTV Rule |
Limit loans to 80% loan-to-value to avoid PMI and reduce risk. |
Common lending threshold. |
| 1.25x DSCR Rule |
Net Operating Income (NOI) should be at least 1.25× the debt payments. |
Standard for mortgage underwriting. |
| 4% Rule |
In retirement, you can withdraw 4% of your portfolio yearly. Applied to rental cash flow for financial independence. |
FIRE investors often use this with real estate. |
| 7% Rule |
Total annual return (cash flow + appreciation) should be at least 7%. |
A benchmark for evaluating investment performance. |
| 200% Rule (1031) |
You can identify any number of properties as long as their total value doesn't exceed 200% of the property sold. |
IRS rule for 1031 tax-deferred exchanges. |
Note: Apply with Caution
- These rules are shortcuts, not full analyses—always verify with real numbers.
- Markets differ. What works in one city might not apply elsewhere.
- These rules are useful for screening, but full underwriting should follow.
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