One Percent Rule in Australian Property: 2025 Guide for Smart Investors

Is the One Percent Rule still a golden benchmark for Australian property investors in 2025? With a shifting market and regulatory updates, it pays to know how this simple formula stacks up in today’s landscape.

What Is the One Percent Rule?

The One Percent Rule is a quick test used by property investors to gauge whether a rental property might generate enough income to justify its purchase price. The rule suggests that a property’s monthly rent should be at least 1% of its purchase price. For example, if you buy an apartment for $600,000, it should rent for at least $6,000 per month to meet the rule.

• Formula: Monthly Rent ≥ 1% of Purchase Price
• Purpose: Fast screening tool for positive cash flow potential
• Origin: Popularised in US real estate, adapted for Australian investors

But does it still hold up in Australia’s 2025 market, where median prices and rent yields are under pressure?

2025 Market Trends: Can the Rule Keep Up?

Australian property prices have surged in the past five years, while rental yields have struggled to keep pace in major cities. According to CoreLogic’s March 2025 data, Sydney’s gross rental yield for houses sits around 2.8%, while Melbourne hovers at 2.9%—well below the 1% monthly (or 12% annual) target set by the rule. Even regional hotspots, which once offered strong yields, are feeling the squeeze as demand pushes prices up faster than rents.

Recent policy updates impacting investors in 2025:

• Interest rate movements: After a series of RBA rate hikes in 2023–24, borrowing costs remain elevated, squeezing net returns.
• Rental reforms: Several states have introduced stricter tenancy protections and capped rent increases, affecting investor flexibility.
• Taxation changes: Ongoing debate around negative gearing, with minor tightening of deductions in this year’s federal budget.

These shifts mean the One Percent Rule is tough to meet in capital cities, but it remains a useful quick-check for regional markets or off-plan opportunities where yields are higher. For example, parts of South Australia and Queensland’s regional centres are still seeing properties that pass the 1% test, largely due to lower entry prices and resilient rental demand.

When the Rule Works—and When It Doesn’t

The One Percent Rule excels as a filtering tool. If a property meets or exceeds the threshold, it’s worth deeper analysis. But in 2025’s market, investors should treat it as a guideline, not gospel. Here’s why:

• Pros:
  • Fast way to shortlist cash flow-positive deals
  • Helps compare multiple properties quickly
  • Useful for regional and value-add opportunities
• Cons:
  • Ignores expenses (rates, insurance, maintenance, vacancies)
  • Doesn’t account for capital growth potential
  • Rarely achievable in Australia’s major cities post-2020

For instance, a $450,000 duplex in Toowoomba renting for $480 a week ($2,080/month) comes close to the 1% rule, while a $900,000 Sydney apartment fetching $700/week ($3,033/month) falls well short. Yet, Sydney’s long-term capital growth may still make it a compelling investment for some.

Smarter Investing: Beyond the One Percent Rule in 2025

Given rising interest rates, tighter lending, and new rental laws, investors in 2025 are blending the One Percent Rule with deeper due diligence. Here’s how savvy buyers are adapting:

• Crunching total returns: Factor in all holding costs, tax benefits, and likely capital growth to assess true yield.
• Regional diversification: Looking outside capital cities for better cash flow and population growth drivers.
• Renovation and value-add: Targeting properties with renovation potential to boost rent and push yields closer to the 1% mark.
• Leaning on technology: Using property data platforms to compare yields, vacancy rates, and price trends in real time.

Investors also need to keep an eye on state-level rental reforms, which can dramatically alter the attractiveness of different markets. For example, new minimum standards for energy efficiency in Victoria and Queensland are influencing both costs and tenant demand in 2025.

Conclusion: Is the One Percent Rule Still Relevant?

The One Percent Rule remains a handy shortcut, but in 2025’s complex market, it’s just the starting line. Smart investors use it as a filter—then dig deeper into cash flow, growth prospects, and policy changes. As the property landscape evolves, blending old-school rules of thumb with up-to-date analysis is the surest way to build wealth and avoid costly mistakes.