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2% Rule Calculator

Real EstateMoving and Space Planning

Work needed before the first tenant moves in. It is added to the price.

Monthly rent as % of total cost —
Result
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Rent needed for 2%
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Monthly shortfall to 2%
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Rent needed for 1%
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Highest price that passes 2%
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Gross annual rent
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Rent ratio against the 1% and 2% lines
The chart appears with your result

The 2% rule says a rental's monthly rent should be at least 2% of what you pay for it, including upfront repairs. Divide monthly rent by total cost and multiply by 100. A $150,000 house with $10,000 of rehab renting for $1,800 scores 1.13%, so it passes the looser 1% test but would need $3,200 a month to meet 2%.

About this tool

Buy-and-hold investors scanning dozens of listings use the 2% rule as a first filter: if monthly rent is at least 2% of the all-in cost, the property is worth a closer look. Enter the price, any rehab budget and the rent you expect, and the calculator returns the rent-to-cost ratio, whether it clears 2% or only the looser 1% screen, the rent each line requires, and the highest price that would still pass at your rent. The working is listed line by line, and a scale places the ratio against the 1% and 2% marks. The rule ignores taxes, insurance, vacancy, management and financing, so a pass means only that the numbers deserve a full cash-flow analysis, not that the property is profitable.

How to use it

  1. Enter the purchase price

    Use the agreed or asking price of the property in dollars.

  2. Add upfront repairs

    Include rehab work needed before renting. Closing costs can go here too if you want them counted.

  3. Enter the expected monthly rent

    Use rent from comparable local listings rather than the seller's estimate.

  4. Read the ratio and targets

    The ratio, verdict, required rents and maximum price update as you type; the scale shows where the ratio falls.

Examples

$100,000 house at $2,000 rent

Purchase price
100000
Upfront repairs and rehab
0
Expected monthly rent
2000

Result Monthly rent as % of total cost: 2%
Result: Meets the 2% rule
Rent needed for 2%: $2,000.00
Monthly shortfall to 2%: $0.00
Rent needed for 1%: $1,000.00
Highest price that passes 2%: $100,000.00
Gross annual rent: $24,000.00

  1. Total cost = $100,000.00 + $0.00 = $100,000.00
  2. Rent ratio = $2,000.00 ÷ $100,000.00 × 100 = 2%
  3. 2% target rent = $100,000.00 × 0.02 = $2,000.00
  4. Highest price at this rent = $2,000.00 ÷ 0.02 − $0.00 = $100,000.00

The standard illustration of the rule: rent equals exactly 2% of the price, so the property just passes.

$150,000 plus $10,000 rehab at $1,800 rent

Purchase price
150000
Upfront repairs and rehab
10000
Expected monthly rent
1800

Result Monthly rent as % of total cost: 1.13%
Result: Meets 1% rule only
Rent needed for 2%: $3,200.00
Monthly shortfall to 2%: $1,400.00
Rent needed for 1%: $1,600.00
Highest price that passes 2%: $80,000.00
Gross annual rent: $21,600.00

  1. Total cost = $150,000.00 + $10,000.00 = $160,000.00
  2. Rent ratio = $1,800.00 ÷ $160,000.00 × 100 = 1.13%
  3. 2% target rent = $160,000.00 × 0.02 = $3,200.00
  4. Highest price at this rent = $1,800.00 ÷ 0.02 − $10,000.00 = $80,000.00

Repairs raise the cost basis to $160,000. The rent clears 1% but would need to be $3,200 to reach 2%.

$200,000 condo at $1,500 rent

Purchase price
200000
Expected monthly rent
1500

Result Monthly rent as % of total cost: 0.75%
Result: Below the 1% rule
Rent needed for 2%: $4,000.00
Monthly shortfall to 2%: $2,500.00
Rent needed for 1%: $2,000.00
Highest price that passes 2%: $75,000.00
Gross annual rent: $18,000.00

  1. Total cost = $200,000.00 + $0.00 = $200,000.00
  2. Rent ratio = $1,500.00 ÷ $200,000.00 × 100 = 0.75%
  3. 2% target rent = $200,000.00 × 0.02 = $4,000.00
  4. Highest price at this rent = $1,500.00 ÷ 0.02 − $0.00 = $75,000.00

A typical high-cost-market result: the rent covers 0.75% of the price, under even the looser 1% screen.

How it is calculated

Ratio (%) = R ÷ (P + C) × 100; target rent = (P + C) × 0.02; maximum price = R ÷ 0.02 − C

R
Expected gross monthly rent
P
Purchase price
C
Upfront repair and rehab costs

The rule compares one month of gross rent with the total money put into the property. A ratio of 2% or more passes; between 1% and 2% passes only the more common 1% rule. Rearranging the same relation gives the rent a property must earn and the most you could pay at a known rent while still meeting 2%. Operating expenses, vacancy and financing are left out on purpose: the rule is a quick screen, and those costs belong in a net operating income or cash-flow calculation.

Sources

When not to use it

  • Do not use it to decide whether to buy; it says nothing about expenses or cash flow.
  • It fits poorly in high-price coastal markets where almost no property reaches 2%.
  • It is not meant for commercial or multi-unit deals priced on net operating income.

Common mistakes

  • Leaving rehab costs out, which makes the ratio look better than it is.
  • Using the seller's optimistic rent instead of verified local comparables.
  • Treating a pass as proof of profit when taxes, insurance and vacancy are ignored.
  • Comparing annual rent with price, which gives a figure twelve times too high.

Frequently asked questions

What is the difference between the 1% rule and the 2% rule?

Both compare monthly rent with total property cost. The 1% rule asks for rent of at least 1% a month, the 2% rule for at least 2%. The 2% line is far stricter and is usually met only by low-priced houses in cheaper markets, often ones needing work. Many investors treat 1% as the practical bar and 2% as a sign of an unusually strong rent yield.

Should repair costs count toward the price?

Yes, if the work must be done before the property can be rented. A $90,000 house that needs $30,000 of rehab really costs $120,000, so the rent has to be measured against $120,000. Leaving repairs out overstates the ratio and is one of the most common ways the rule is misapplied.

Is a property that passes the 2% rule automatically a good investment?

No. The rule looks only at gross rent. Properties that pass are often in areas with higher vacancy, older housing stock, higher maintenance and harder tenant turnover. A full analysis of taxes, insurance, repairs, management and vacancy is still needed before any conclusion about returns.

How does the 2% rule relate to gross yield?

A 2% monthly ratio equals a 24% gross annual rent yield before expenses. At 1% the gross yield is 12%. Gross yield is simply annual rent divided by cost, so the rule is a monthly restatement of the same idea with a fixed threshold.

What price can I pay for a property that rents for $1,500?

Under the 2% rule the all-in cost can be at most $1,500 ÷ 0.02 = $75,000. If the home needs $5,000 of repairs, the purchase price itself should be no more than $70,000. The calculator shows this figure as the highest price that passes.

Why do so few listings meet 2%?

In most U.S. metros, property prices have risen faster than rents for years, so monthly rent typically sits well under 1% of value. The 2% threshold dates from periods and markets with much lower prices relative to rents, which is why many investors now use it only as an upper benchmark.