What is the '1% rule' in rental property investing and what is it primarily used for?

The 1% rule is a simple back-of-envelope filter: if a property's monthly gross rent equals or exceeds 1% of the all-in purchase price, it may generate sufficient cash flow to be worth a deeper analysis. A $200,000 property should rent for at least $2,000 per month under this rule. It is a screening tool only and does not account for local operating expenses, property taxes, market appreciation, or quality. In high-cost coastal markets like New York or San Francisco, finding properties that meet the 1% rule is extremely difficult, while in Midwestern markets it is far more common.