The Core Rules of Thumb
Rental property rules of thumb for 2025
| Rule | Threshold | What It Screens For |
|---|---|---|
| 1% Rule | Monthly rent ≥ 1% of purchase price | Cash flow positive potential (challenged at 7% rates) |
| 50% Rule | Operating expenses ≈ 50% of gross rent | Realistic expense estimate |
| Gross Rent Multiplier | GRM ≤ 12 (GRM = Price ÷ Annual Rent) | Reasonable price relative to income |
| Cap Rate minimum | Cap rate ≥ 6% in 2025 for positive cash flow | Income yield benchmark |
| DSCR minimum | DSCR ≥ 1.25 (NOI ÷ Debt Service) | Loan qualifying and safety |
| 70% Rule (BRRRR) | Buy at ≤ 70% of ARV − repair costs | Value-add deal screen |
The 1% Rule (monthly rent ≥ 1% of purchase price) was a reliable cash flow indicator when mortgage rates were 3–4%. At 7% rates: 1% Rule properties barely break even or produce slight negative cash flow. The rule still works as an initial screen but no longer guarantees positive cash flow as it did in 2020. In 2025: target 1.1–1.3% to achieve meaningful positive cash flow at current rates.
Rules of Thumb for BRRRR Investors
BRRRR-specific rules of thumb
| Rule | Formula | Target |
|---|---|---|
| Maximum purchase price | 70% of ARV − repair costs | Leaves room for refi + profit |
| Repair contingency | Contractor estimate × 1.25 | Budget for unknowns |
| Refinance LTV target | 75% of ARV | Leaves 25% equity in property |
| Cash recycled minimum | Recover 90%+ of invested cash | True BRRRR achievement |
The Break-Even Rent Calculation
Calculate the minimum rent needed to break even: Total monthly expenses (mortgage + taxes + insurance + management + maintenance + CapEx reserve + vacancy allowance). On a $250,000 property with 20% down at 7%: mortgage $1,329 + expenses $600 = $1,929/month needed to break even. If market rent is $1,650: this deal produces −$279/month. If market rent is $2,100: positive $171/month.
Validate Any Deal Against These Rules of Thumb
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