Last month, a client I consulted was looking at a two-bedroom condo in East Anchorage and had been calculating potential income based on a monthly rent of $1,630. With a purchase price of $428,000, they expected an annual rental income of $19,560 by multiplying the monthly rent by 12, and believed they would have significant cash left over after deducting only the loan principal and interest. The problem was that their calculations did not account for property taxes, management fees, or vacancy losses. Such calculations are particularly risky in areas like Anchorage, where property tax rates are high.

According to RentCafe, the average rent in Anchorage as of 2026 is $1,495, with two-bedroom units averaging around $1,630. At the same time, Redfin data shows that the median home price in Anchorage is $428,000, and when considering the entire Anchorage borough, it rises to $454,000. Based on these two figures, the total return rate calculated from the annual rental income of $19,560 divided by the purchase price is around 4.6%. While this may not seem bad at first glance, it's important to remember that this total return rate does not reflect any costs.

Here, the effective property tax rate of 1.29% for the Anchorage borough comes into play. Based on a purchase price of $428,000, the annual property tax alone is about $5,521. Adding in homeowners insurance, maintenance costs (around 1% of property value, approximately $4,280), management fees (8-12% of rent, which translates to about $1,600-$2,000 annually), and vacancy losses, it becomes clear that operating costs can account for nearly half of total rental income, as suggested by the 50% rule. If we consider half of the rental income of $19,560 as operating costs, the net operating income (NOI) would be about $9,780, resulting in a cap rate that drops to around 2.3%.

This is the point that the investor overlooked. When calculated without management fees, the return rate appeared to be in the 4% range, but once all operating costs were accounted for, the cap rate fell below half. Furthermore, if the purchase involves a loan, the cash-on-cash return must also be considered. It's necessary to calculate the pre-tax cash flow against the actual cash invested, including down payment and closing costs, especially in areas like Anchorage where rental prices are low compared to home prices, leading to a greater burden from loan interest on cash flow.

Assuming a 20% down payment, the actual cash invested for a property priced at $428,000 would be around $85,600 plus closing costs. If the pre-tax cash flow after loan interest and principal repayment is about $3,000 annually, the cash-on-cash return could be around 3.5%, which is actually higher than the previously calculated cap rate of 2.3%. However, rather than making investment decisions based solely on this number, it may be more realistic to view it from the perspective of total returns, considering the asset accumulation from monthly loan repayments and potential future appreciation, especially in a market like Anchorage with low cap rates.

According to RentCafe, Anchorage rental prices have only increased by 1.23% over the past year. This is a relatively modest increase compared to the national average, likely reflecting Alaska's unique patterns of population influx and outflow, military personnel movements, and seasonal demand changes. Even in areas where new supply is not significantly increasing, if rental demand does not grow rapidly, it will be challenging to defend low cap rates solely through rental price increases.

Applying the 1% rule makes the characteristics of this area even clearer. 1% of the purchase price of $428,000 is $4,280, but the actual rent for a two-bedroom unit is only $1,630. To meet the 1% rule, rental prices would need to be more than double the current amount, suggesting that Anchorage is more realistically approached with a focus on long-term appreciation or asset growth from loan principal repayment rather than pure cash flow.

It's also worth examining school districts that Korean families are interested in. Some areas in Eastside or South Anchorage tend to have relatively high ratings on GreatSchools, but school district boundaries change frequently, so it's advisable to check the assigned school for a specific address before purchasing. If moving from another state, it's important to consider that the effective property tax rate of 1.29% is higher than the Alaska state average of 1.14%, but there is no state income tax, which should be factored into the overall picture. When reviewing investment properties, it's best to first check less obvious items like management fees and vacancy losses.

This article is not investment or legal advice, and it is recommended to consult with a real estate professional before entering into any contracts.