The 1% rule deal screener
A fast back-of-envelope filter for rental deals: monthly rent ÷ purchase price ≥ 1%. Hard to find in Toronto / Vancouver, common in secondary Canadian markets.
Your scenario
Result
A heuristic, not gospel. Some markets work at 0.7-0.9% with strong appreciation; others demand 1.5%+ to cash-flow.
What the 1% rule is for
The 1% rule is a back-of-envelope filter for residential rental property: monthly rent ÷ purchase price ≥ 1%. If a property meets it, the rent is likely strong enough to cash-flow after typical operating expenses and a normal mortgage. If it doesn't, you're relying on appreciation, principal paydown, or future rent growth to make the deal work.
The rule isn't gospel — it's a screening tool. Use it to throw out the bottom 70% of listings before doing detailed underwriting on the rest.
Where the 1% rule works in Canada
- Secondary Ontario markets: Windsor, Sault Ste. Marie, Thunder Bay, Sudbury, North Bay
- Atlantic Canada: parts of Saint John, Moncton, Sydney, Glace Bay
- Saskatchewan: Regina, Saskatoon, Prince Albert (especially townhomes)
- Northern Manitoba: Brandon, Thompson
- Some Quebec secondary markets: Trois-Rivières, Saguenay, Drummondville
Where it doesn't — and why
- Toronto / GTA: typical condo rents at 0.30–0.45% of purchase price
- Vancouver / Lower Mainland: similar 0.30–0.45%
- Montreal: 0.45–0.70% in core neighbourhoods
- Calgary: 0.55–0.75% in most areas (closest to 1% rule of major Canadian cities)
- Halifax / Ottawa: 0.55–0.80%
In these markets, investors rely on appreciation + principal paydown rather than monthly cashflow. A condo at 0.40% rent ratio in Toronto might lose $400/month in operating cashflow but appreciate $40,000/year. Different model.
What the rule misses
- Property tax: Winnipeg 1.25% vs Vancouver 0.30% — same rent ratio, very different cashflow
- Condo fees: $400–$1,200/month in some buildings can wipe out the cashflow advantage
- Insurance: Atlantic Canada is 2–3× the BC/ON rate due to storm/water exposure
- Vacancy: secondary markets often have higher vacancy than headline rates suggest
- Capital expenditures: older properties need roofs, furnaces, plumbing every 10–20 years — budget 1% of value per year
Worked screening example
$420,000 detached in a secondary Ontario market, renting at $3,100/month:
- Ratio: $3,100 ÷ $420,000 = 0.738%
- Verdict: fails the 1% rule, but well above the 0.40% Toronto baseline
- Next step: run actual cashflow with property tax, mortgage, insurance, vacancy, capex — see rental cashflow calc
Better deeper-dive metrics
- Cap rate — net operating income ÷ price; standard commercial real estate metric
- Rental yield — gross and net annual return on property value
- Monthly cashflow — after mortgage, what you actually pocket
- Cash-on-cash return: yearly net cashflow ÷ cash invested (most useful for leveraged investors)
- Total return: cashflow + principal paydown + appreciation, on a yearly basis
Related
Mortgage agent or broker? Calculators like this one embed on the website you already have, and Mortgage360 campaign landing pages capture the enquiries they start straight into your CRM.