A rental clears the 1% rule when monthly rent is at least 1% of the purchase price, a quick screening convention, not a guarantee of profit. Enter a price and rent on the right to check it, then run the full calculator for real cash flow, cap rate and cash-on-cash return.
On $300,000 at $2,400/mo rent, this clears the 1% rule (0.80% is close; the 1% rule target rent here is $3,000/mo).
This site's own formula · the 1% rule is a screening convention, not a guarantee · runs entirely in your browser
Get the figure →Pick a metric. Underwrite a deal.
Full underwriting: cash flow, cap rate, cash-on-cash return and total ROI, with vacancy and management built in.
Get the figure →NOI divided by price. Compare two properties on equal footing, no loan assumptions needed.
Get the figure →Annual cash flow divided by what you put in. The metric that shows what leverage is actually doing for you.
Get the figure →Sixty-second triage before you run full numbers. Does the rent-to-price ratio clear the bar?
Get the figure →Buy on the numbers, not the listing photos.
U.S. government sources for further reading and to verify figures on this page:
A 7 percent cap rate means a property produces net operating income equal to 7 percent of its purchase price each year, before any financing costs. On a $300,000 purchase, that is roughly $21,000 in annual NOI. Higher cap rates can mean better income relative to price, though they often reflect higher risk or weaker markets too. Cap rate is most useful when comparing similar properties in the same area.
It depends on the market and your goals. In high-demand urban markets, 4 to 5 percent is typical, accepted in exchange for lower risk and better appreciation. In secondary markets, investors often need 7 to 10 percent or more to justify the uncertainty. No universal answer exists. The practical check: compare the property to recent comps in the same submarket and to your own required return.
A 4 percent cap rate means NOI equals 4 percent of the purchase price each year. On a $500,000 property, that is $20,000 per year before debt service. It is typical in competitive, low-vacancy markets where buyers accept thinner current income in exchange for expected appreciation. The tradeoff: less cushion if expenses climb or a unit sits empty, so underwriting tightly matters more at this cap rate than at 7 percent.
A 3 percent cap rate means the property yields only 3 percent of its value as NOI each year, low by any historical measure. Buyers in premium coastal or gateway markets sometimes accept it, betting on strong rent growth and long-term appreciation. The catch: if your mortgage rate exceeds the cap rate, the property is cash-flow negative from day one. Model several scenarios before committing at this level.
The full calculator loads with a specific deal already typed in: $350,000 purchase price, 25% down, a 7% rate on a 30-year loan, $2,600 monthly rent, $4,200 in annual taxes, $1,400 in annual insurance, no HOA, maintenance budgeted at 1% of price per year, 5% vacancy and an 8% management fee. Those are this calculator's own default constants, not a hypothetical, so the arithmetic below is exactly what the tool produces the moment you load the page.
Start with the down payment: 25% of $350,000 is $87,500, which leaves a $262,500 loan. At 7% over 30 years, the monthly principal and interest payment on that loan runs $1,746. Rent gets discounted for vacancy first: 5% off $2,600 leaves $2,470 in effective monthly rent, the number the calculator actually works with rather than the sticker rent you'd list on Zillow.
From there, subtract every monthly cost in turn. Property taxes are $4,200 a year, or $350 a month. Insurance is $1,400 a year, or about $117 a month. Maintenance at 1% of price comes to $292 a month. Management at 8% of effective rent adds $198. Add those four numbers to the $1,746 mortgage payment and total monthly expenses land at $2,702. Subtract that from $2,470 in effective rent and you get negative $232 a month.
That is not a typo, and it is not this calculator being broken. It is what a fully financed, professionally managed, insured and maintained deal actually costs once every line item is honest. The cap rate on this same property is 5.19%, calculated from net operating income divided by price, which ignores the loan entirely and still describes a fairly ordinary deal for a $350,000 single-family rental in most markets. Cash-on-cash comes out negative as well, around negative 3.19%, because the mortgage payment alone exceeds what effective rent minus operating costs leaves behind. Total ROI, which folds in the principal you are paying down each year on top of cash flow, comes out positive at roughly 20.76%, because equity paydown on a 7% loan is a real number even when the checking account is not growing.
Change one input and the picture moves. Push rent to $2,850 instead of $2,600 and effective rent after vacancy rises enough to flip monthly cash flow positive. Put 30% down instead of 25% and the smaller loan cuts the mortgage payment by more than the extra cash invested costs you in cash-on-cash terms. That is the entire point of running your own numbers instead of trusting a listing agent's pro forma: the difference between a deal that pencils and one that does not is frequently a single input, and the only way to find out which one you are looking at is to do the arithmetic before you sign anything.
Skipping vacancy is the most common one. A property that "cash flows" using 100% occupancy every month of the year is a property that has never actually been rented out. Even strong markets see tenant turnover, lease gaps and the occasional slow month; the 5% vacancy assumption baked into this calculator's defaults is a starting point, not a worst case, and plenty of markets run higher.
Underestimating maintenance is the second one. Routine upkeep is not the same category as a capital expense like a roof or a furnace, and treating a single "1% of value" line item as coverage for both is how investors get blindsided by a $9,000 repair they had no reserve for. Budget maintenance and capital reserves separately if you can, because this calculator's single maintenance line is a simplification, not a promise.
Ignoring management costs because you plan to self-manage is the third. Even if you never hire a property manager, running the numbers with an 8% management fee included shows you the deal's actual floor: what it looks like if you get sick, move away, or simply decide managing tenants yourself is not how you want to spend your evenings. If the deal only works when you personally answer every maintenance call at 11pm, it is not a deal, it is a second job with negative cash flow.
The fourth mistake is treating a negative monthly cash flow number as an automatic disqualifier without checking total ROI. A property that loses $232 a month in cash but builds meaningful equity through principal paydown, as the example above does, is a different investment than one that loses cash and builds nothing. Neither is automatically right. But conflating the two, or only looking at one metric, is how otherwise-decent deals get rejected and how genuinely bad ones get bought.
Monthly cash flow is the only number in the results panel that hits your bank account. Everything else is a ratio or an estimate of value created elsewhere. If monthly cash flow is negative, you are funding the difference out of pocket every month, full stop, regardless of what the other four numbers say.
Cap rate answers a different question: ignoring financing entirely, how much does this property earn relative to its price? It exists to let you compare a cash buyer's deal to a heavily leveraged one on equal footing, which is why it does not move when you change the down payment or the interest rate. Use it to compare properties, not to judge whether your specific financing makes sense.
Cash-on-cash return is the leveraged version of the same idea: what is your actual down payment earning, given your actual loan? Two investors buying the identical property with different financing will see different cash-on-cash numbers, and that is by design. It is the metric that answers "is my money working," not "is this property good."
Total ROI is the only figure that adds principal paydown to cash flow, which is why it can read positive even when monthly cash flow is negative. Treat it as a longer-horizon number: paydown is real equity, but it is not liquid, and it will not cover a slow month or a surprise repair. Read all four together before deciding anything, because each one is answering a slightly different question and none of them is the whole answer by itself.
One timing note worth factoring in: rental listings in most U.S. markets pick up through late winter and spring as leases turn over ahead of the school year, which means more inventory to underwrite but also more competition on the good ones. Landlords and sellers doing year-end tax planning sometimes move on price in November and December instead, when buyer traffic thins out. Neither pattern is a guarantee, but running the numbers before the busy season starts, rather than during it, tends to leave more room to walk away from a deal that does not clear your bar.