The 1% rule — monthly rent should equal at least 1% of the home's price — still works as a screen, but only 227 of ~26,000 US ZIP codes with the data to evaluate pass it (under 1%) as of May 2026. Of the ones that do, 67% sit in high or very-high climate-risk areas, the median passing-ZIP home value is $101K, and population is shrinking in most of them. The rule isn't broken. The markets where it still works just got a lot narrower — and a lot harder to underwrite.
This guide explains what the rule means mathematically, where the passing markets actually are, and the honest read on what "passing the 1% rule" should and shouldn't mean for an investment decision in 2026.
The formula
The 1% rule is simple arithmetic: monthly rent ÷ purchase price ≥ 1%.
A $200,000 property needs to rent for at least $2,000/month to pass. A $100,000 property needs $1,000. The threshold scales linearly with price.
Converted to an annual figure, 1% × 12 = 12% gross rental yield. So the 1% rule is equivalent to "gross yield ≥ 12%/year" — the same number we report on every ZIP page on this site. A property that passes the 1% rule has a 12%+ gross yield by definition; one that doesn't, doesn't.
So does it still work in 2026?
The honest answer: yes, as a screen — but the universe of markets where it works has narrowed sharply, and the markets that remain are mostly ones where the rule passes because the home value is low, not because the rent is high.
Across the ~26,000 US ZIP codes with the data to evaluate (every ZIP with a published page on this site):
| Yield threshold | ZIPs passing | % of US ZIPs |
|---|---|---|
| Gross yield ≥ 5% (mid-market) | 5,126 | 15.2% |
| Gross yield ≥ 8% (yield-led) | 1,178 | 3.5% |
| Gross yield ≥ 10% (near-1%) | 464 | 1.4% |
| Gross yield ≥ 12% (1% rule) | 227 | 0.7% |
A decade ago — when rents and prices were both lower and the rule was already a quoted heuristic — a much larger share of US ZIPs cleared the bar. The post-2020 price appreciation broke the rule for most of the country: home prices grew faster than rents, compressing gross yields downward. The ZIPs that still pass tend to be the ones that didn't participate in the appreciation cycle.
Where the passing ZIPs actually are
Out of the 227 passing ZIPs, just five states account for more than half:
| State | ZIPs passing |
|---|---|
| Ohio | 30 |
| Michigan | 26 |
| Illinois | 24 |
| Pennsylvania | 21 |
| Texas | 15 |
Add Missouri (14), Alabama (13), Florida (11), Louisiana (9), and New York (8) and you're at over three-quarters of the list. The pattern: Rust Belt + Deep South small-to-mid-sized cities + a thin Florida/Texas tail.
The top of the list is mostly Detroit, St. Louis, and a few smaller post-industrial cities:
- 48213 Detroit, MI — home value $46K, gross yield 29.9% (yields ~2.5% per month, far above the 1% threshold)
- 63115 St. Louis, MO — home value $40K, yield 29.4%
- 48205 Detroit, MI — home value $52K, yield 29.1%
- 71103 Shreveport, LA — home value $33K, yield 28.7%
- 61605 Peoria, IL — home value $41K, yield 27.8%
These aren't markets that pass the 1% rule; they obliterate it. The reason is the price denominator: a $40-50K home renting for $1,000+ produces 25-30% gross yields because the home value is collapsing under the weight of structural decline. The 1% rule mathematically rewards low-cost markets, and the lowest-cost US markets in 2026 are mostly ones the economy is leaving behind.
The 20 "diversified" passers
Once you require what most investors would consider a defensible combination — populations of at least 10,000, home values above $100K, and climate risk below the "high" tier — only 20 ZIPs pass. The top of that filtered list:
| ZIP | City, State | Home value | Gross yield |
|---|---|---|---|
| 14611 | Rochester, NY | $119,919 | 16.1% |
| 61102 | Rockford, IL | $118,430 | 15.8% |
| 08103 | Camden, NJ | $127,605 | 15.6% |
| 14621 | Rochester, NY | $111,943 | 15.3% |
| 39206 | Jackson, MS | $113,264 | 14.6% |
| 08104 | Camden, NJ | $131,411 | 14.6% |
| 19013 | Chester, PA | $113,256 | 14.3% |
| 88210 | Artesia, NM | $238,102 | 14.1% |
| 14608 | Rochester, NY | $122,938 | 13.9% |
| 79603 | Abilene, TX | $143,386 | 13.9% |
Three Rochester NY ZIPs cluster at the top. Camden NJ has two on the list. Rockford IL, Jackson MS, Chester PA, Artesia NM (an oil-patch town), Abilene TX. These are the markets where the 1% rule still produces a passing answer without requiring the buyer to accept a near-zero population trend or a "very high" climate score.
Even within this filtered group, the math says these are mid-cycle distressed-recovery plays, not boring-and-good rentals. None of them is a market most investors would identify as a default starting point in 2026.
What the data actually says
Three patterns the data forces on the rule's interpretation:
- Passing the 1% rule is not the same as finding a good deal. Of the 227 passing ZIPs, the median home value is $101,155 — roughly one-fifth of the US median ZIP. The 1% rule passes here because the denominator is small, not because the numerator is large. Both Detroit 48213 ($46K home) and Rochester 14611 ($120K) clear the bar, but for completely different underlying reasons.
- Climate risk is heavily skewed. Out of the 227 passing ZIPs, 125 (55%) are flagged "high" climate risk on the FEMA NRI, and another 27 (12%) are "very high." Only 8 passing ZIPs are "low" climate risk. The rule's defenders rarely flag this. The reason climate-risky markets disproportionately pass is the same reason cheap markets disproportionately pass: insurance markets are pricing in the risk through rising premiums, suppressing home values relative to rents.
- Population is generally shrinking. Most passing ZIPs sit in metros with flat or declining population trends. Some of these markets have been losing residents for decades. Buying a property whose rule-passing yield depends on low home values that depend on out-migration is a thesis with a built-in expiration date.
When the 1% rule still earns its keep
The rule isn't useless. It earns its keep in three specific contexts:
- As a fast no-go screen. If a property doesn't pass the 1% rule and isn't in a high-appreciation market, you can probably stop underwriting and move on. The number of viable yield-led investments below the 1% threshold is small enough that the rule still discriminates usefully.
- For relative comparison within yield-led markets. Within a city like Detroit where most properties pass the 1% rule, the margin by which they pass — 1.2% per month vs 2.5% per month — is a quick comparison metric for which submarkets are pricing in the most risk.
- As a historical benchmark. "Markets that passed the 1% rule 10 years ago" is a useful question if you want to study where rule-passing markets have ended up. The answer is generally not encouraging — most of the rule-passing markets from a decade ago are still rule-passing markets today, which means their relative position hasn't improved.
When the rule actively misleads:
- Appreciation markets. A property that fails the 1% rule at $400K rent / $50K home value might be a strong total-return play if appreciation runs 5-7%/yr. The 1% rule penalizes appreciation markets unfairly. Use it as a screen for yield strategies, not against appreciation strategies.
- Submarket-level differences. "Detroit passes the 1% rule" hides enormous variance between neighborhoods. The rule operates at the ZIP level; the actionable unit is the block. Always drop down to comparable sales and street-level walking before relying on a passing ZIP-level number.
- Pro-forma rents. If you're underwriting from listing rent rather than trailing realized rent, the rule's threshold gets fuzzier. Most rule-passing markets in 2026 have realized rents 10-15% below asking — adjust before screening.
So: is the 1% rule outdated?
The verdict from the data: the rule still works as a screen, but it now screens for a tiny and specific class of market. A property that passes the 1% rule in 2026 is statistically very likely to be in (a) a sub-$150K home value range, (b) a metro with stagnant or declining population, and (c) elevated climate-risk exposure. That doesn't mean the property is a bad investment. It does mean the rule no longer maps to "this is a good market for an investor to enter" the way it did when it was first popularized.
The rule is a starting point for a research process, not a substitute for one. Use it the way the most disciplined buyers always have: as one screen among several, paired with the kind of climate, demographic, and submarket research that no rule of thumb can replace. The highest rental-yield ZIPs list is the live version of "ZIPs that pass" — the top 10 there all pass with significant margin, and the article's caveats apply equally to the broader 227.
Try the math yourself
For any ZIP you're considering, plug its typical home value and rent into the rental-yield calculator below. A gross yield of 12% or higher means it passes the 1% rule:
Try it: Rental Yield Calculator
Gross and net yield are estimates based on the inputs and the selected expense ratio. Actual income and expenses will vary by property and market. Not investment advice.
Frequently asked
Is the 1% rule still valid in 2026? It's still valid as a screening tool, but only 0.7% of US ZIPs pass it. Most of the passing ZIPs sit in distressed or climate-exposed markets where the rule passes because home values are low, not because rents are high. The rule's defenders sometimes still cite it as a general-purpose investment standard; the underlying data says it now identifies a narrow and specific market subset.
What does it mean if a property passes the 1% rule? Mathematically: the property's gross rental yield is at least 12% per year. Practically: the property is in a market where home values are low relative to rents. In 2026 that typically means a low-cost home in a Rust Belt or Deep South city, often with elevated climate risk. Passing the rule is a useful flag for further research, not a buy signal.
How does the 1% rule compare to cap rate? The 1% rule operates on gross rent (no expenses subtracted). Cap rate operates on net operating income (rent minus taxes, insurance, vacancy, management, maintenance). A property passing the 1% rule has roughly a 7-8% standardized cap rate after typical expenses — solid but not extraordinary. See the cap rate explainer for the conversion math.
What's the 2% rule? A more aggressive version that requires monthly rent to be at least 2% of purchase price. In 2026 only the most extreme ZIPs pass it — primarily Detroit, St. Louis, and Shreveport submarkets with home values below $50K. These markets have the same characteristics as the broader 1%-passing universe, just more pronounced. The 2% rule is mainly used as an additional filter on top of distressed-market lists, not as a primary screen.
Next steps
For the current list of US ZIPs producing the highest gross yields — most of which pass the 1% rule comfortably — see the 10 highest-rental-yield ZIPs in America. For the methodology on what gross yield, cap rate, and the standardized expense model mean for any individual property, the rental-yield and cap-rate explainers cover the math in detail.
Data: Zillow ZHVI + ZORI, FEMA NRI, ZIP-level. Refreshed monthly. 227 passing ZIPs out of ~26,000 with sufficient data to evaluate as of May 2026. See methodology for the full calculation. The screener lets you filter by yield, climate risk, and other criteria interactively.