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