2% Rule (Real Estate)

Real Estate Investing

Updated Apr 2026 • Has calculator

A strict real estate screening rule stating monthly rent should be at least 2% of the purchase price, targeting high cash-flow investment properties.

What is 2% Rule?

The 2% rule is a tighter variant of the 1% rule, typically applied by investors seeking maximum cash flow in lower price-point markets. A $100,000 property passing the 2% rule would rent for at least $2,000/month. Such deals are rare in most major US cities but occasionally available in the Midwest and Deep South. Like the 1% rule, it is a pre-filter — not a final investment decision. A property meeting the 2% threshold almost certainly has a strong cap rate and cash-on-cash return, but the investor must still verify rent comparables, neighborhood quality, deferred maintenance, and the true expense load before committing.

Formula

Rent-to-Price Ratio (%) = (Monthly Rent / Purchase Price) × 100

Worked Example

2024

Step 1 Purchase price: $95,000 | Closing costs: $3,500 | All-in: $98,500

Step 2 Gross monthly rent: $1,950

Step 3 Ratio = $1,950 / $98,500 × 100 = 1.98%

Step 4 → Just below 2% rule — still strong cash flow, passes 1% rule easily

Step 5 → Verify neighborhood vacancy and realistic expense load before purchasing

Source: Investopedia — 2% Rule in Real Estate (2024-01-01)

Calculate 2% Rule

Gross Monthly Rent ($)

Total monthly rent (all units, before any expenses)

Purchase Price ($)

Total acquisition cost including purchase price and closing costs

Rent-to-Price Ratio

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Not investment advice.

How to Interpret 2% Rule

< 1

Below 1% — fails even the standard 1% rule

1 – 1.5

Passes 1% Rule — decent cash flow, short of 2% benchmark

1.5 – 2

Approaching 2% — strong deal, do full analysis now

> 2

Passes 2% Rule — exceptional cash flow; verify market data

📚 Advanced Real Estate — Complete the path

Sources

Investopedia — 2% Rule in Real Estate