Gross Rent Multiplier and the 1% Rule: Screening Rental Properties Fast
October 29, 2026
When looking at dozens of rental listings, investors use shortcuts to decide which deserve a closer look. The gross rent multiplier (GRM) is the purchase price divided by gross annual rent. The 1% rule says that monthly rent should be at least 1% of the purchase price.
A $250,000 property that rents for $2,000 a month has annual rent of $24,000, so GRM = 250,000 ÷ 24,000 = 10.4. Monthly rent is 0.8% of price, which fails the 1% rule. A $180,000 property renting for $1,800 has GRM = 180,000 ÷ 21,600 = 8.33 and a rent-to-price ratio of 1.0%.
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A lower GRM means more rent per dollar of price. The table shows four examples. A GRM of 10 to 12 is typical in many expensive markets, while 6 to 8 is found in lower-priced markets. The 1% rule generally implies a GRM of 8.3 or lower. In many high-cost cities, 1% properties are rare, but investors accept lower ratios for expected appreciation. Conversely, in some low-cost areas, 1.5% to 2% ratios exist but with higher risks: vacancies, crime, tenant turnover, and weaker price growth.
| Price | Monthly rent | Rent-to-price | GRM | Passes 1% rule? |
|---|---|---|---|---|
| $250,000 | $2,000 | 0.80% | 10.4 | No |
| $180,000 | $1,800 | 1.00% | 8.3 | Yes |
| $300,000 | $2,400 | 0.80% | 10.4 | No |
| $120,000 | $1,500 | 1.25% | 6.7 | Yes |
From Gross to Net: The 50% Rule
These screens use gross rent and ignore expenses. A rough approach is the 50% rule: operating expenses (taxes, insurance, maintenance, vacancy, and management but excluding mortgage payments) take about half of the rent. For the first property, net operating income ≈ $24,000 × 50% = $12,000, which is a cap rate of 12,000 ÷ 250,000 = 4.8% before financing. For the second, $21,600 × 50% = $10,800 ÷ $180,000 = 6.0%. The cap rate is a better measure of return, but the GRM is quick to compute from a listing.
Using the Screens Well
Use GRM to compare similar properties in the same neighborhood, because it is meaningful only against local benchmarks. Calculate it for the market from recent sales: if comparable properties sell at GRMs of 9 to 10 and the one you are considering is 12, it may be overpriced or the rent understated. Then verify real figures: actual property taxes, insurance quotes, repair history, and vacancy rates. The 1% rule is a filter, not a decision rule; a property that fails it can still be a good investment in the right market, and one that passes can be a bad one.
Caveats
Neither measure accounts for financing, tax effects, appreciation, or the condition of the property. Rents in listings may be asking rents, not achieved rents. Treat the results as starting points for due diligence. This article is educational and not investment advice.
Frequently Asked Questions
How do I calculate the gross rent multiplier?
Divide the purchase price by the gross annual rent.
What is the 1% rule?
Monthly rent should be at least 1% of the purchase price.
What does a lower GRM mean?
More rent relative to the price.
What is the 50% rule?
Operating expenses are estimated at about half of the rent.
Are these screens enough to buy?
No. They are only first filters before detailed analysis.