The 1% Rule: Does It Still Apply in Canada?

Greenell Properties Capital
Sep 8
2 min read

The 1% rule has long been a quick rule of thumb for real estate investors: if a property rents for 1% of its purchase price per month, it’s likely to cash flow. But in Canada’s current market—especially in high-cost urban centres—is this metric still relevant?

In this blog, we explore what the 1% rule really means, where it still works, and which metrics you should be using instead.

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1. A Quick Refresher: What Is the 1% Rule?

The idea is simple:If a property costs $500,000, it should generate at least $5,000/month in rent to meet the 1% rule.

The rule is popular because it helps investors quickly filter listings for cash flow potential—especially in affordable, high-rent areas.

2. Where It Doesn’t Work (Anymore)

In markets like Toronto, Vancouver, and increasingly Hamilton, even duplexes and triplexes rarely hit 1%. Most fall closer to 0.4%–0.7%.

Why?

Skyrocketing property prices
Rent control in key markets
Elevated interest rates reducing leverage efficiency

This doesn’t mean these areas are bad investments—but they tend to be appreciation-focused, not cash-flow-centric.

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3. Where It Still Applies

Smaller cities and emerging rental markets still yield 1% or better, especially with value-add strategies or multi-unit properties.

Examples include:

Windsor, ON
Saint John, NB
Sudbury, ON
Regina, SK
North Bay, ON

These cities may lack population density—but offer better affordability and looser rent regulations.

4. What to Use Instead of the 1% Rule

A deeper analysis should always include:

Net Operating Income (NOI)
Cap rate (target 5%+ in many markets)
Cash-on-cash return
Loan coverage ratio (LCR)
Local rent comps and demand data

Investor Tip: Use the 1% rule as a first filter—but never rely on it alone for decision-making.

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Final Thoughts

The 1% rule is becoming less relevant in many parts of Canada—but it still has value as a screening tool in cash-flow-focused markets.

At Greenell Capital, we help investors dig deeper into the numbers—using real market data, not just rules of thumb—so they buy based on facts, not guesswork.