The One Percent Rule
Monthly rent divided by purchase price — if it clears 1%, it's worth a real analysis.
- Difficulty
- Starter
- Time to result
- ~days to results
- Steps
- 4
- Confidence
- 90%
The one percent rule is Leonard's front-end triage filter for rental properties. Take the monthly rent the property will bring in and divide it by the purchase price. Above one percent and you probably have a deal worth examining. Below one percent and you might not. Way below and you probably don't. He is explicit that this is not a hard and fast rule — it varies by region and carries caveats. Its value is purely as a volume filter: when you are staring at fifty properties, running the one percent rule lets you knock out the ones that aren't even close in seconds, finalize the ones that are close, and reserve the full return analysis for that shortlist. It is the cheap step that makes the expensive step tractable.
Origin
Leonard developed his screening approach out of the practical problem of deal flow — an investor browsing listings faces far more candidates than they can properly underwrite. Rather than build ever-more-complex models like some investors do, he pushed in the opposite direction: a single division that costs nothing and eliminates most of the list, so the real work only touches the survivors.
Core principles
- 01Screening is not analysis — its only job is to cheaply eliminate.
- 02A fast rough filter applied to fifty properties beats a perfect model applied to three.
- 03The rule is directional, not definitive — it varies by region and has caveats.
- 04Anything way below the threshold is a decisive no; anything close earns a full analysis.
- 05Preserve your analytical energy for the small set that survives the filter.
How to run it
- 1
Gather the two inputs
You need only the monthly rent the property will bring in and the purchase price. Nothing else.
Watch out Use the rent the property will realistically bring in, not the best case. A wrong input produces a wrong screen.
- 2
Divide rent by price
Monthly rent ÷ purchase price = the ratio. Compare it to one percent.
- 3
Triage into three buckets
More than one percent: probably a good deal, keep it. Close to one percent: keep it for full analysis. Way below one percent: discard.
Pro tip Be ruthless with the 'way below' bucket — the whole value of the filter is in what it lets you not analyze.
- 4
Run the full analysis on survivors only
For the shortlist that cleared or came close, do the real work: cash flow per door and cash-on-cash return against your benchmarks.
Watch out Never buy on the one percent rule alone. It is a screen, not a decision.
In the wild
Leonard describes the working scenario: you are looking at fifty different properties to analyze. Rather than doing a full analysis on all of them, you quickly run the one percent rule on each — rent divided by price — and knock out everything that isn't even close to the threshold.
→ The list collapses to the handful that are at or near one percent, which then get the full return analysis, and the decision is made from there. Days of modeling reduce to a shortlist in minutes.
Common mistakes
Treating the screen as the decision
Clearing one percent means the property earns a full analysis, not that it is a buy. Leonard is explicit that it is not a hard and fast rule and has caveats depending on where you live.
Applying it uniformly across regions
The threshold varies depending on where you are in the country. Importing a one percent benchmark into a market where nothing clears it will screen out every deal, including good ones.
Inflating the rent input to make deals pass
The rule is only as good as the rent estimate. Optimistic rent assumptions let bad properties through the filter and defeat the entire purpose of screening.
Is it for you?
Best for
Rental investors screening high volumes of listings who need a fast triage step before committing to detailed underwriting.
Not ideal for
Markets where the rule's assumptions break down, flippers whose economics are appreciation-driven rather than rent-driven, or as a substitute for actual deal analysis.
From the transcript
“how you can do this analysis really quick is what we call the one percent rule and what the one percent rule is is you…”
“when you're looking at 50 different properties to analyze rather than doing an analysis on all of them quickly do a one percent rule knock…”
From the episode
Robert Leonard: Millennial Investing and House Hacking
Robert Leonard