AI Summary
5 min readThe New (Better) 1% Rule for Real Estate
The old 1% rule—comparing monthly rent to purchase price—was built for a different era. When interest rates, property taxes, and insurance were all lower, that simple benchmark worked well enough to signal whether a deal would cash flow. But Dave Meyer, Chief Investment Officer at BiggerPockets, argues that the rule has become misleading. "It's really hard to find 1% rule deals right now," he says, "and it could be really discouraging using a benchmark from a different era when cash flow was easier to find." Worse, the old rule can produce false positives: a property might look good on rent-to-price but fail to cash flow because taxes or insurance eat up the margin. So Meyer has built a replacement: the rent-to-payment ratio.
How the rent-to-payment ratio works
Continue reading the full summary in the app — free to try.
Read Full Summary →Free • No credit card required
Never miss an episode of BiggerPockets Real Estate Podcast
Get every new episode summarized in your inbox — free, ~5 minutes to read.
No spam. Unsubscribe anytime.
What you'll learn
- 1 (00:00) **Introducing the Rent-to-Payment Ratio** - Dave Meyer introduces the new metric as a replacement for the outdated 1% rule, explaining why the old rule no longer works.
- 2 (01:12) **Why the Old 1% Rule is Outdated** - Dave explains the specific shortcomings of the rent-to-price ratio, arguing it can lead to both discouragement and false positives.
- 3 (02:58) **Defining the New Metric: Rent-to-Payment Ratio** - Dave details how the ratio works, what it measures, and what it does not replace.
- 4 (04:57) **How to Calculate and Interpret the Ratio** - Dave provides the simple formula and gives initial benchmarks for what the numbers mean.
- 5 (10:01) **The Top 10 Cash Flow Markets (Green Tier)** - Dave presents the top-ranked U.S. markets where the average deal has a rent-to-payment ratio of 1% or higher.
- 6 (14:02) **Using the Rankings as a Starting Point** - Dave explains how to use the market list to create a shortlist for further research, not as a final decision.
- 7 (15:30) **How to Beat the Market Average** - Dave explains that even in "yellow" or "red" tier markets, good deals exist if you can find properties with better-than-average ratios.
+ Full timestamped outline available in the app
Guests on this episode
Show Notes
The rules of real estate investing have changed.
For years, investors were using the one-percent rule to quickly determine if a real estate deal would cash flow. But the one-percent rule, rent-to-price ratio, and other common rules of thumb have a glaring blind spot. They account for purchase price, but they don’t account for expenses.
Meanwhile, mortgage rates, taxes, and insurance have all risen across the board—expenses that can easily kill your cash flow.
So, Dave’s come up with a new rule of thumb you can use to quickly analyze rental properties and markets. He’s calling it the rent-to-payment ratio. By comparing estimated rents to the estimated PITI payment itself, you’ll have a much better idea of whether a rental property will actually cash flow month to month.
And today, we’re not just breaking down how the formula works. Dave also built an entire spreadsheet that ranks U.S. real estate markets by their rent-to-payment ratios. Whether you’re looking for the best cash flow markets to invest in or a quick way to weed out unprofitable properties, this is the kind of math you need to make sharper investing decisions in 2026.
In This Episode We Cover
The “new” rule of thumb for finding great real estate deals and rental markets
Why rent-to-price ratio is a flawed metric (and which ratio to use instead)
Why the popular one-percent rule no longer works in 2026
The top 10 real estate markets with the highest rent-to-payment ratios
How to bake today’s mortgage rates, taxes, and insurance into your initial analysis More from this podcast