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Understanding the 1% Rule in Canadian Real Estate (And When It Doesn’t Apply)

  • Writer: Greenell Properties Capital
    Greenell Properties Capital
  • May 26
  • 2 min read

The 1% Rule is a popular metric used by real estate investors to quickly evaluate whether a rental property might produce positive cash flow. According to the rule, a good investment property should rent for at least 1% of the purchase price each month. For example, if a property costs $500,000, it should ideally generate at least $5,000/month in rent.


While this rule can be helpful as a quick screening tool, it’s not a one-size-fits-all solution—especially in the Canadian market where property prices and rental yields vary widely by region.



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Why the 1% Rule Is Popular


The appeal of the 1% Rule lies in its simplicity. It provides a fast, back-of-the-napkin way to determine whether a property is worth analyzing further.


In many U.S. markets, the 1% Rule is achievable and helps ensure that a property generates enough income to cover mortgage payments, expenses, and deliver profit.


When the 1% Rule Falls Short in Canada


In high-cost cities like Toronto, Vancouver, or even parts of the GTA, properties rarely meet the 1% benchmark. A $900,000 home might only rent for $3,500/month—far below the 1% mark. That doesn’t necessarily make it a bad investment.


Many investors in Canada focus on appreciation, value-add strategies, or BRRRR (Buy, Rehab, Rent, Refinance, Repeat) plays to make the numbers work. The 1% Rule may unfairly eliminate these deals from consideration.



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Better Metrics to Use Instead


For Canadian investors, more detailed metrics often make better sense:


  • Cash-on-Cash Return

  • Net Operating Income (NOI)

  • Debt Service Coverage Ratio (DSCR)

  • Cap Rate


These tools give you a fuller picture of the property’s performance and help you assess whether it fits your investment strategy and goals.



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Final Thoughts


The 1% Rule is a useful filter—but not a definitive answer. Use it as a starting point, not your final decision. In Canada, deeper analysis often reveals the true value of an investment.


At Greenell Capital, we help investors build smart, scalable portfolios across Ontario and beyond. Whether you're analyzing deals, planning renovations, or securing financing, our team is here to support your journey toward financial freedom through real estate.

 
 
 
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