$1 Rule in Real Estate: What It Means and How to Use It

If you’re scrolling through property listings and wondering whether to rent or buy, the $1 rule can be a handy shortcut. It’s not a magic formula, but it gives you a quick reality check before you dive into spreadsheets. In plain terms, the rule says: for every $1 you spend on monthly rent, the comparable home should cost about $20,000 to $25,000 in purchase price. If the numbers line up, buying might make sense; if they don’t, renting could be the smarter move.

What Is the $1 Rule?

Think of it as a back‑of‑the‑envelope test. You look at the average rent for an apartment in your target area, then multiply that rent by 20‑25. The result is the price range where buying starts to feel competitive with renting. For example, if a one‑bedroom costs $1,200 a month to rent, the $1 rule suggests a buying price between $24,000 and $30,000. Obviously, most cities have higher prices, so the rule helps you see how far off the market is from that sweet spot.

The rule also reminds you to factor in extra costs that come with ownership—property taxes, insurance, maintenance, and sometimes HOA fees. Those expenses can push the breakeven point higher. Still, the $1 rule gives you a quick sanity check before you start crunching detailed numbers.

How to Apply It Today

1. Find the local rent. Pull the average monthly rent for a similar size unit in the neighbourhood you like. Websites like Zillow, Redfin, or local listings are good sources.

2. Do the multiplication. Multiply that rent by 20 and then by 25. You now have a price band where buying could be competitive.

3. Check the actual market. Look at listings in the same area. If most homes fall within or below your band, buying might be worth a deeper look. If they’re well above, renting may still be the better financial choice.

4. Add ownership costs. Estimate property tax (usually 1‑1.5% of home price), homeowner’s insurance, and a 1% budget for repairs each year. Add those to your monthly mortgage payment to see the true cost.

5. Compare cash flow. If the total monthly cost of owning (mortgage + taxes + insurance + repairs) is lower than rent, you’re likely getting a good deal. If it’s higher, you may need to reconsider or look for a cheaper property.

Remember, the $1 rule is a starting point, not the final answer. Real life involves interest rates, down payments, and how long you plan to stay. But using the rule saves you hours of number‑crunching and helps you decide whether to keep looking or start negotiating.

So next time you’re stuck between a lease and a listing, pull out this quick test. It’s fast, it’s free, and it gives you a clearer picture of which path makes more sense for your wallet today.