Among the cases I reviewed, there was one where a person looking to purchase rental properties in Baton Rouge with cash believed that the cap rate and cash-on-cash return were the same. Both indicators are expressed as percentages, which can be confusing; however, the cap rate shows the pure profitability assuming no loans are used, while cash-on-cash return reflects the actual cash invested and loan conditions, making them fundamentally different.

Starting with the rental prices in Baton Rouge, according to RentCafe, the average rent in January 2026 is $1,248, while Apartment List reports the median rent in June 2026 as $1,111. The average for a one-bedroom is around $1,667. The purchase prices vary by source, but according to Resideline, the median selling price over the last six months until July 2026 is $278,990, and the median price for East Baton Rouge Parish has risen to $292,000 over the last three months.

Calculating based on the one-bedroom rent, the total return calculated by dividing the annual rental income of $24,000 by the purchase price of $279,000 is about 7.17 percent, which is quite high. However, there is a unique variable in Louisiana that must be considered. Louisiana has a significant Homestead Exemption that greatly reduces property tax burdens for owner-occupied homes, but investment properties do not receive this benefit. Therefore, applying the average effective tax rate of 0.55 percent for the entire state of Louisiana to investment properties may result in a lower estimate than reality.

If we apply the 50 percent rule and assume operating costs are half of rental income, the NOI would be around $12,000 annually, and the cap rate would be calculated at about 3.58 percent. This is half of the previously calculated total return of 7.17 percent, but since investment properties do not receive the Homestead Exemption, the property tax burden may be higher than this calculation suggests, so it is advisable to check the actual parish tax rate separately.

Moving on to cash-on-cash return, this is calculated by assuming a purchase with a loan, where the pre-tax cash flow is calculated against the actual cash invested, including down payment and closing costs. Just because the cap rate is calculated at 3.58 percent does not mean the cash-on-cash return will yield the same number. Increasing the loan proportion means that while the monthly mortgage principal and interest payments increase, the actual cash invested decreases, so depending on leverage conditions, cash-on-cash return can appear higher or lower than the cap rate. The investor I met was able to understand why these two indicators should be viewed separately only after clarifying this point.

Recalculating based on the median price of $292,000 for the entire East Baton Rouge Parish with the same one-bedroom rent, the total return drops slightly to 6.86 percent compared to the city center. This indicates that there is a significant price gap between properties in the city and those in the outskirts. Additionally, since Louisiana is prone to hurricane risks, homeowners insurance premiums are often higher than in other states, so it is important to consider that the actual proportion of operating costs may be greater than what is assumed in the 50 percent rule.

Baton Rouge, being home to Louisiana State University, has a steady demand for rentals from students and young professionals, and areas near preferred school districts for Korean families tend to have slightly higher purchase prices. While school districts can be referenced through GreatSchools or Niche ratings, it is important to check the assigned school for the specific address before making a purchase, as district boundaries frequently change.

For those coming from other states to Louisiana, while property taxes are generally lower than the national average, it is crucial to remember that due to the aforementioned Homestead Exemption structure, the tax burden difference between owner-occupied and investment properties can be greater than in other states. One should not only look at total returns but also check both cap rate and cash-on-cash return to gauge the actual income received. This article does not constitute investment or legal advice, and it is recommended to consult a professional before making any contracts.