The 1% rule and GRM as screens

A screen is a calculation that uses two numbers to decide whether a property deserves a third look. The two screens on this site, the 1% rule and the gross rent multiplier (GRM), work from the same pair of inputs: the purchase price and the gross rent. Neither one touches vacancy, operating expenses, financing, taxes, or the condition of the building. That is what makes them fast, and it is also the whole of their limitation. This guide walks through how the engine computes each ratio, what the outputs mean, how the monthly and annual rent bases are reconciled, and why a pass on either screen is an instruction to keep analyzing, not a conclusion.

What a screen is, and what it is not

Both ratios compress a property to a single relationship between what it costs and what it is asked to earn, before a single expense is subtracted. The methodology page describes every tool here as a screening and planning model rather than an underwriting engine, and the two screens are the purest case: they are arithmetic on price and gross rent, nothing more. A screen cannot tell you that a property makes money. It can only tell you that, on the top line alone, the property is or is not in the range this convention flags for the fuller models — the NOI-based cap rate and the full rental analysis with financing. Used that way, a screen saves time. Used as a verdict, it hides every input the fuller models subtract — vacancy, operating expenses, and the mortgage.

The 1% rule, as the engine computes it

The engine takes the purchase price and the expected monthly rent and returns three things: the target rent, which is one percent of the price; the actual ratio, which is monthly rent divided by price expressed as a percentage; and a pass flag that is true when the actual ratio reaches 1%. Nothing else goes in. The 1% threshold is one of the two conventions this site states, and it is stated as a convention, not a finding.

Every input in this guide is an illustrative value entered for the example, not a market figure. Take a property entered at $220,000 with expected rent of $2,200. The target rent is $2,200, the actual ratio is 1%, and the screen passes exactly at the line. Enter $300,000 with $2,500 of rent and the target rises to $3,000; the actual ratio is 0.833%, so the screen fails. A $150,000 property with $1,650 of rent reaches 1.1% against a $1,500 target and passes with room; a $95,000 property renting for $1,100 reaches 1.158% against a $950 target and passes as well.

Two more inputs show what the ratio does and does not respond to. A $450,000 property with $4,500 of rent sits at 1%, the same ratio as the $220,000 property, because the rule is a proportion: scaling both inputs together leaves it unchanged. And a $180,000 property renting for $1,795 reaches 0.997% against a $1,800 target, failing by $5 of monthly rent. The flag flips on that small gap because a screen has a hard edge; the economics of the property do not change at the edge, and the flag should not be read as if they did.

Reading the three outputs

The target rent is the rent at which this price would sit exactly at the convention; in reverse, it is the rent an asking price would need. The actual ratio is the property's own rent-to-price relationship, and it carries more information than the flag: the $220,000 property's 1% and the $180,000 property's 0.997% differ by 0.003 percentage points, yet one passes and one fails. The flag is the least informative of the three. It answers one yes-or-no question about one convention, and the convention knows nothing about what the property costs to run.

The gross rent multiplier: price divided by gross annual rent

GRM asks a related question from the other direction: how many years of gross rent would it take to equal the price? The engine takes the price, the gross rent, and whether that rent is a monthly or an annual figure. Monthly rent is annualized by multiplying by twelve before anything else happens; annual rent passes through unchanged. The multiplier is then the price divided by that annual rent, and the engine restates it as months of rent — the multiplier times twelve — so both conventions are visible side by side.

On the $300,000 property with $2,500 of monthly rent, the annual basis is $30,000, the multiplier is 10, and the months-of-rent equivalent is 120. Enter the same rent as an annual figure of $30,000 instead and the engine returns the identical 10: the period selector changes how the rent is read, never the ratio. The $220,000 property with $2,200 of rent carries a GRM of 8.33; the $150,000 property at $1,650 comes to 7.58; the $95,000 property at $1,100 comes to 7.2; the $450,000 property at $4,500 comes to 8.33; and the $180,000 property at $1,795 comes to 8.36. A lower multiplier means fewer years of gross rent to cover the price. It does not mean the property keeps more of that rent, because nothing about keeping it has been entered yet.

Monthly and annual bases: the factor of twelve

The GRM mistake the engine is built to surface is mixing a multiplier of monthly rent with a multiplier of annual rent. The engine computes only on the annual basis, which is why the months-of-rent figure is reported alongside it: 10 and 120 describe the same property. The reverse calculation shows what happens when the bases are confused. Reverse GRM multiplies gross annual rent by a multiplier you supply from comparable sales. With $2,500 of monthly rent and an annual-basis multiplier entered as 9 — an illustrative value, not a market figure — the estimated value is $270,000; entering the rent as $30,000 a year gives the same $270,000. But enter the months-of-rent figure 120 as if it were an annual multiplier and the estimate becomes $3,600,000, twelve times the $300,000 the ratio came from. The engine accepts that input because it cannot know which basis you meant. Push the multiplier past the limit the tool supports — a figure of 1,200, say — and it refuses with its own message: “Enter a gross rent multiplier of 1000 or less. A figure in the hundreds usually means a monthly-rent-based multiplier is being mixed with the annual basis this tool uses.”

The reverse mode is exactly reversible. Take the $150,000 property's computed multiplier of 7.58, apply it to $1,650 of monthly rent, and the estimated value is $150,000, the price the multiplier came from. That is the whole of the method: the multiplier does all the work. Change the entered multiplier from 9 to 11 on the same $2,500 of rent and the estimate moves from $270,000 to $330,000 while nothing about the property has changed. An estimate is only as good as the comparables the multiplier was borrowed from, and the engine has no comparables of its own.

The two screens are one ratio

The 1% rule and GRM are not independent checks. A property at exactly 1% monthly has gross annual rent equal to 12% of its price and a GRM of 8.33; the $220,000 and $450,000 properties both show it. Every property that passes the 1% rule has a GRM at or below that figure, and every property that fails has a GRM above it: the $150,000 property passes at 7.58, the $180,000 property fails at 8.36. The build checks this agreement across every example on this page. Running both screens therefore does not add a second opinion; it restates the same top-line ratio in two units. What GRM adds over the flag is that it is continuous and comparable across a list of similar properties, where the flag is binary.

What both screens cannot see

Everything the fuller models add is absent from both screens, and the absence is simply an absence: the ratio does not approximate the missing inputs, it omits them. Take the $300,000 property with $2,500 of monthly rent twice over. With a vacancy allowance entered at 5% and $600 of monthly operating expenses, the cap-rate model computes $21,300 of annual NOI and a 7.1% cap rate. Keep every screen input identical and raise operating expenses to $1,100 a month: NOI falls to $15,300 and the cap rate to 5.1%. The 1% ratio is 0.833% in both cases and the GRM is 10 in both cases, because operating expenses never entered either screen. Vacancy is the same story: the screens use gross scheduled rent, while the cap-rate and rental models first reduce it to effective rent, $2,375.00 at that 5% allowance.

Financing is invisible for the same reason. Run the lower-expense version of that property through the rental model entered at 7% over 30 years with a $60,000 down payment and the cash-on-cash return is 3.57%; raise the down payment to $150,000 and it becomes 6.22%. The cap rate is 7.1% both times, because operating expenses exclude the mortgage and cap rate is financing-independent by construction, and the two screens show no change at all. Condition, taxes, insurance, and the age of the roof are equally absent — not approximated, just not there. The guide to what these models leave out lists every omission per calculator.

Never a verdict

The reason to run a screen is to decide where to spend analysis time, not to decide whether to buy. A pass means the top-line ratio is in the range this convention flags for further work; a fail means it is not. Neither statement says anything about cash flow, because cash flow is the top line less vacancy, less operating expenses, less the mortgage, and the screen has subtracted none of them. The next step after either result is the same: the cap rate calculator for the property's own yield after expenses, and the rental property calculator for cash flow and cash-on-cash return once financing is layered in. The guides to NOI and cap rate and to cash flow and cash-on-cash return cover those models; the guides index lists the rest.

Frequently asked questions

Not financial advice: the 1% rule and the gross rent multiplier are screening heuristics, not an analysis. Always run the full numbers before any offer. Every figure on this page is computed at build time by the same tested engine that powers the calculators. See the methodology page.