Why the 1% Rule Isn’t Enough in 2025

Part of our Underwriting Single Family Rentals in 2025 series.

In the ever-evolving world of real estate investing, the 1% Rule has been a valued guideline for gauging a property's potential profitability. It offers a straightforward shortcut: if a property can rent for at least 1% of its purchase price each month, it's generally considered a good investment.

However, as we step into 2025, savvy investors recognize that while this rule is helpful, it doesn't capture the full picture of a property's worth. This simple formula doesn't factor in critical elements like real expenses, financing costs, or the potential for long-term appreciation and cash flow.

Real expenses, including property management, maintenance, and unforeseen repairs, can significantly impact your net returns. Additionally, depending on your financing strategy, interest rates and terms can alter the actual cost of owning a property. Ignoring these variables could lead to an incomplete assessment.

Furthermore, given today’s dynamic market conditions, a myopic focus on immediate rental income might overlook the property's potential for appreciation.

Let’s look at when to use the 1% Rule — and when to look deeper.

What Is the 1% Rule in Real Estate?

The 1% Rule is a simple yet powerful guideline used by real estate investors to evaluate the profitability of a rental property. This rule suggests that the monthly rent of an investment property should be at least 1% of the purchase price. By adhering to this rule, investors can quickly ascertain whether a property might generate sufficient rental income to cover expenses such as mortgage payments, taxes, and maintenance.

- Example of the 1% Rule: If a property is purchased for $150,000, the monthly rent should ideally be at least $1,500.

By evaluating the rent-to-price ratio, the 1% Rule serves as an initial financial indicator for investors. It helps determine if a property can potentially generate positive cash flow, making it a valuable tool in a real estate investor's decision-making process.

While not a comprehensive analysis, the 1% Rule is easy to apply and provides a quick assessment of a property's earning potential. With Doorvest’s fully managed properties and market expertise, you can confidently navigate the investment landscape and enhance your real estate portfolio. Ready to explore properties that meet the 1% Rule? Let's schedule a call today!

Why the 1% Rule Can Be Misleading in 2025

The 1% Rule is a popular guideline among real estate investors. It suggests that a property's monthly rent should be at least 1% of its purchase price to be considered a strong investment. While this quick calculation is useful for an initial assessment, it can be misleading, especially in the evolving real estate landscape of 2025.

What the 1% Rule Overlooks

Taxes: Property taxes vary significantly by region and can greatly impact overall returns. High property taxes can erode profits that appear satisfactory under the 1% rule.
Interest Rates: With fluctuating interest rates, mortgage payments can significantly affect cash flow. In 2025, with potential shifts in the economy, ignoring interest rates may offer a skewed investment picture.
Maintenance Costs: Properties require regular upkeep, and unexpected repairs can disrupt cash flow. The 1% Rule doesn't account for these ongoing maintenance expenses, which can vary depending on the property's age and condition.
Appreciation Potential: While the 1% Rule focuses on immediate rental income, it neglects the long-term appreciation potential of a property. A home in a growing market might not meet the 1% Rule initially but could offer substantial gains through appreciation over time.

Investing with Doorvest ensures a comprehensive view beyond simple calculations like the 1% Rule. We prioritize more holistic analyses, considering location trends, long-term growth, and management solutions. This approach equips investors with a fuller understanding of their property's true potential.

Thinking of adding to your investment portfolio? Consider how Doorvest could guide you through a smarter investment strategy. Ready to explore options?

Better Ways to Evaluate a Deal in 2025

Evaluating real estate deals is a critical skill for successful investors, and understanding key financial metrics is essential. In 2025, investors have even more sophisticated tools at their disposal to assess the viability of rental property investments. Here are three key metrics you should focus on:

Cap Rate (Capitalization Rate):: This metric helps you evaluate the potential return on your investment property. Calculate the cap rate by dividing the net operating income (NOI) by the property purchase price. A higher cap rate indicates a potentially more lucrative investment. It's essential to compare cap rates within the local market to ensure you're getting a competitive return.
CoC (Cash on Cash Return):: This is a favorite metric for investors who are keenly interested in understanding the cash flow from their properties. It measures the annual return you make on the property compared to the total cash invested. CoC provides a clear picture of how quickly you can recover your initial investment. A higher CoC suggests greater profitability from rental income.
Total ROI (Return on Investment):: Consider all sources of income and expenses when evaluating total ROI. This includes property appreciation, tax benefits, and rental income. ROI gives an overarching view of the property's performance over time. It’s crucial to factor in historical appreciation rates and rental market trends to estimate this metric.

In 2025, many investors are opting to underwrite deals fully to grasp these metrics better. This involves a deep dive into the numbers to project future performance accurately. For those looking for efficiency and peace of mind, pre-vetted options by platforms like Doorvest can offer a trusted alternative. With Doorvest, you gain access to fully managed properties, expertly vetted tenants, and transparent ownership, allowing you to focus on strategic investment growth.

Understanding and utilizing these metrics effectively can maximize your investment potential. This could be a great fit for your portfolio—want to schedule a call?

FAQ Section

Does the 1% Rule still work?

The 1% Rule is a classic real estate investment guideline recommending that the monthly rent of a property should be at least 1% of its purchase price. This rule of thumb can provide a quick way to screen potential investments, but market conditions and property specifics have evolved.

- Market Variation: Different regions may have varying rental yields and appreciation potentials, so the 1% Rule might not always apply.
- Property Condition and Location: Consider factors like the property's condition, location, and local demand, which can influence returns beyond the basic 1% metric.
- Doorvest Advantage: With Doorvest, you gain access to fully managed properties with vetted tenants, which can optimize cash flow and minimize risk regardless of traditional rules.

What should I use instead?

If the 1% Rule doesn't fit your needs, consider these alternatives for assessing investment potential:

- Cap Rate: This calculates a property's net operating income divided by its purchase price, offering a more detailed view of potential returns.
- Cash Flow Analysis: Focus on the difference between rental income and operating expenses to gauge immediate profitability.
- Local Market Trends: Research regional appreciation rates and rental demand to assess long-term value growth.
- Doorvest Insights: Our platform offers comprehensive property assessments and transparent ownership information, simplifying the evaluation process.

Investing with Doorvest means benefiting from a data-driven approach to real estate, tailored to today's dynamic market landscapes. Ready to explore your next investment opportunity with us?

Investing in Real Estate: Why Doorvest is the Smart Choice

Real estate has long been recognized as a robust investment vehicle. It's a tangible asset that not only holds intrinsic value but also offers various revenue streams, such as rental income and appreciation in property value. But navigating the real estate market can be daunting. That's where Doorvest steps in to simplify the process.

What Makes Doorvest Stand Out?

- Turnkey Properties: Our properties are meticulously selected and fully renovated, allowing you to enjoy a hassle-free investment experience.
- Vetted Tenants: We ensure that every property comes with carefully screened tenants, which means consistent rental income from day one.
- Comprehensive Management: Doorvest handles everything from maintenance to rent collection, giving you more time to focus on growing your portfolio.
- Market Analysis: Our team provides data-backed insights into local market trends, enhancing your investment decision-making process.

The Potential of Real Estate Investment

Real estate investment can provide stability and growth for your financial portfolio. Considering factors like location, rental yield, and historical appreciation, Doorvest identifies opportunities that have the potential to maximize returns.

- Cash Flow: Monthly rental income can create a consistent revenue stream, supporting your financial goals.
- Appreciation: Over time, real estate has a strong track record of increasing in value, offering long-term gain.
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- Tax Benefits: Investors can often take advantage of deductions that reduce taxable income.

With Doorvest, we're not just providing properties; we're offering a stress-free pathway into real estate investing, tailored to meet the needs of modern investors.

Take the Next Step with Doorvest

Ready to explore your real estate investment options? Dive into our fully underwritten listings to discover properties that align with your investment strategy. Or, connect with one of our expert advisors to learn how we evaluate deals in today's market, ensuring you make informed and confident decisions.

This could be a great fit for your portfolio—why wait? Let's find the right opportunity for you today!