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One Percent Rule

What is 'One Percent Rule'

A rule of thumb used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment. The aim of the one percent rule is to have the rent be greater or equal to the mortgage payment, so the investor breaks even on the property at worst. The rule is used for quick estimation, as there are other costs associated with a piece of property that are not taken into account, such as upkeep, insurance and taxes.

Explaining 'One Percent Rule'

Purchasing a piece of property for investment requires a thorough analysis of future rents compared to the cost of owning that property. Property owners want to maintain a cash flow greater than costs. For example, an investor is looking to purchase a home valued at $200,000, with the goal of renting the home out for income. After placing 20% down, the investor has a mortgage of $160,000. The one percent rule says that the home would have to be rented out for no less than $1,600 per month ($160,000 * .01).


Further Reading


Restraining yourself: the implications of fiscal rules for economic stabilization
link.springer.com [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Institutional development, financial deepening and economic growth: Evidence from ChinaInstitutional development, financial deepening and economic growth: Evidence from China
www.sciencedirect.com [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

The role of the exchange rate in monetary-policy rulesThe role of the exchange rate in monetary-policy rules
pubs.aeaweb.org [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

The “five percent rule” for improved water service: can households afford more?The “five percent rule” for improved water service: can households afford more?
www.sciencedirect.com [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

The Taylor rule and optimal monetary policyThe Taylor rule and optimal monetary policy
pubs.aeaweb.org [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Keeping it simple: Financial literacy and rules of thumbKeeping it simple: Financial literacy and rules of thumb
www.aeaweb.org [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Defending the one percentDefending the one percent
www.aeaweb.org [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Reinvested Earnings Bias, the'Five Percent'Rule and the Interpretation of the Balance of Payments-with an Application to Transition EconomiesReinvested Earnings Bias, the'Five Percent'Rule and the Interpretation of the Balance of Payments-with an Application to Transition Economies
papers.ssrn.com [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Monetary-policy rules and the great inflationMonetary-policy rules and the great inflation
pubs.aeaweb.org [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …

Law, finance, and economic growth in ChinaLaw, finance, and economic growth in China
www.sciencedirect.com [PDF]
… balance and output is displayed in Figure 1, which juxtaposes the balance for state and local governments excluding social insurance pay- ments as a percentage of GDP … One or two asterisks indicate the coefficient is significant at the 5 or 1 percent level, respec …



Q&A About One Percent Rule


What is the One Percent Rule?

The One Percent Rule is a rule of thumb that states only one percent of Internet users are responsible for creating content, while 99 are merely consumers.

Are there any other examples where this might apply ?

Similar rules are known in information science; for instance , the 82 rule known as the Pareto principle states that 20% o f participants will produce 80 % o f activity , however activity is defined .

How does this apply to Wikipedia?

This also applies to Wikipedia approximately. For every article on Wikipedia, there are about 100 people who edit it and about 1000 people who read it.

What does the Pareto principle state in regard to participation in an internet community?

The Pareto principle states that 20% of participants will produce 80% of activity, however activity is defined.

What does the one percent rule aim to do?

The one percent rule aims to have the rent be greater or equal to the mortgage payment, so that at worst, you break even on your investment.

What is the one percent rule?

The one percent rule is a rule of thumb used to determine if the monthly rent earned from an investment property will exceed that property's monthly mortgage payment.

Why is there a need for this kind of analysis?

Purchasing a piece of property for investment requires thorough analysis of future rents compared with costs associated with owning that property. Property owners want cash flow greater than costs. For example, an investor wants to purchase a home valued at $200,000 with goal of renting out that home for income. After putting down $20,000 and taking out a loan for $180,000, they have a mortgage payment of $1,800 per month (180 * .1). The investor needs their rental income to be no less than $1800 per month (180 * .1) in order to break even on their investment.

Are there any exceptions ?

There may be some exceptions depending on what type of site you have and how many visitors you get each day .

How can you apply this knowledge to your own website or online community ?

You can use these statistics to determine how much time and effort you should spend on your website or online community .

What percentage of Internet users create content versus consume content?

About one percent creates content, while 99 consume content.

Is there a similar rule in information science ?

Yes, the 82 rule known as the Pareto principle states that 20% of participants will produce 80% of activity, however activity is defined .

How can you use this information in real life?

You can use this information when making decisions about whether or not it makes sense financially to buy an investment property based on its rental potential compared with its cost as well as other factors such as upkeep and taxes.

Who created the One Percent Rule?

The creator of the rule is unknown.

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