What is the 1% rule in multifamily — and does it matter for your books?
The 1% rule is a gut-check for buying a property. It says nothing about whether the property is actually making money once you own it — that's what your books are for.
The 1% rule is a quick screening heuristic investors use before buying: monthly rent should be at least 1% of the purchase price. A $300,000 property renting for $3,000/month or more clears the rule; below that, it's a flag to look closer. It's fast, and that's the entire point — it's meant to help you decide which deals are worth a real underwriting pass, not to tell you whether a property is actually profitable.
Where it falls apart
The 1% rule ignores everything that actually determines cash flow: operating expenses, vacancy, property management fees, maintenance and capital reserves, insurance, taxes, and debt service. A property can comfortably clear 1% on paper and still lose money every month once real expenses hit the books. It's an acquisition filter, not an accounting standard, and it was never designed to double as one.
What tells you the truth after you own it
Real, monthly, per-property books: a rent roll reconciled against what actually hit the bank, operating expenses categorized correctly, debt service tracked separately from operating expenses, and a genuine net cash flow number at the bottom — not an estimate. The 1% rule gets you to the negotiating table. Clean books are what tell you, every single month, whether the deal you closed on is actually performing the way the rule of thumb suggested it would.
Rules of thumb get you to the deal. Books tell you the truth after.
If you're managing a multifamily property or a small portfolio and want to see the real numbers instead of a screening estimate, see real estate investor bookkeeping for how per-property reporting works.
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