The long-standing one-percent rule that compared a property’s monthly rent to its purchase price has lost much of its predictive power. In 2026, rising mortgage rates, property taxes and insurance mean purchase price alone no longer reflects the cash flow burden an investor will face. Dave Meyer, chief investment officer at BiggerPockets, proposes an updated screening tool: the rent-to-payment ratio which directly compares expected monthly rent to the complete monthly mortgage payment.
This article explains how the rent-to-payment ratio works, why it addresses the shortcomings of rent-to-price heuristics, and how Meyer used the metric to rank major US markets. The method is both straightforward to apply to single listings and effective for market-level screening when you incorporate average taxes and insurance.
The rent-to-payment ratio: definition and advantages
The core calculation is simple: monthly rent divided by the total monthly debt service. The total monthly debt service includes principalinterestproperty taxes and insurance—often abbreviated as PITI. Because taxes and insurance have increased materially in many locations, using a rent-to-payment comparison captures expense drivers that the traditional rent-to-price rule ignores.
Practically, the ratio flags how close rents come to covering the recurring mortgage obligation. A higher number indicates stronger cash flow potential; Meyer reports that a value near or above 1% is a solid signal that a property may cash flow on an as-is basis. He also notes that deals with ratios in the 0.7–0.75 range can still produce positive monthly cash flow after deeper underwriting or modest value-add work.
How the metric was applied to U.S. markets and what the rankings reveal
To test the concept at scale, Meyer assembled county- and city-level data across the United States and produced a ranked list of 54 large markets using aggregated home values, rents, taxes and insurance. When averaging these components, the top markets by rent-to-payment ratio are predominantly in the Midwest and smaller, lower-priced metro areas where average home values sit well below national medians.
Examples from the ranked list include cities such as Detroit, Cleveland, Memphis and Birmingham, which post some of the highest ratios because average rents are reasonably strong relative to very low typical mortgage payments. By contrast, coastal and high-priced tech markets landed at the bottom of the ranking, where high property values and elevated insurance or tax costs make monthly payments exceed typical rents.
Interpreting averages and local variation
Meyer emphasizes that these market-level ratios are averages. A city-level average of 0.74, for instance, does not prevent investors from finding specific properties that outperform that baseline. Instead, the metric should be used as a screening tool to build a short list of markets where cash flow opportunities are more likely and then to seek out individual listings that beat the local average.
Applying the ratio to a listing: a quick example
On a property level, the calculation is equally direct: estimate monthly rent, estimate the monthly PITI payment, then divide. In illustrative analyses, Meyer compared two Memphis multifamily listings. One listing produced a near-1.0 ratio when priced at list value, indicating slim cash flow; another, priced slightly lower or with modest renovation upside, reached a ratio above 1.1 and therefore offered a stronger cash-flow profile. That contrast highlights two uses of the metric: fast elimination of likely losers and prioritization of deals that merit deeper underwriting.
The example underscores an important point: the rent-to-payment ratio is a time-saver, not a full valuation. After identifying promising candidates, investors still must model financing scenarios, vacancy, maintenance, and expected rent growth with full calculators and subject-matter diligence.
Practical guidance and caveats tied to the methodology
When applying this rule of thumb, use realistic rent estimates and include accurate local averages for taxes and insurance if you want market-level overview. Remember that very high ratios can sometimes flag anomalies—such as mispriced listings or markets with structural demand issues—so high values require the same verification as lower ones. Meyer suggests a practical target band (roughly 0.8–1.1 for many markets) as a starting filter for investors focused on monthly cash flow, while acknowledging individual strategies will shift that target.
In short, the rent-to-payment ratio is a modern screening metric designed for the expense realities of 2026. It refines the old one-percent rule by anchoring rent to the actual recurring obligation an investor pays each month, helping to fast-track deal selection and market comparison before a deeper underwriting process.
