Recently, a client came to me curious about the rental yield of a condo in Santa Monica, bringing along some data. However, with rental prices varying across different sites, it was confusing to determine which numbers to use as a reference. In such cases, it's best to first align on the sources and the time frame before starting the calculations.

According to Apartment List, the median rent in Santa Monica as of May 2026 is $2,302, which is 8.8 percent lower than a year ago. In contrast, Zumper reported the median rent for all bedroom and property types in April of the same year at $3,595. While the difference between these two figures is significant, the trend is the same: rents, which temporarily surged after the fire, are dropping more steeply in the Los Angeles area than anywhere else due to recovering supply. The average home price, according to Zillow, is $1,697,753 as of June 2026, down 1.3 percent from the previous year, with other sources reporting median sale prices ranging from $1.8 million to $1.95 million.

For one-bedroom apartments, the average is $2,179 according to Apartment List, while Zumper lists one-bedroom rents at $2,725 and two-bedroom rents at $4,390, showing a discrepancy based on unit size. The same applies to home prices. When looking solely at single-family homes, the median sale price from 73 recent transactions reached $3.85 million, while condos and townhouses showed a median of $1,335,000 based on 111 transactions, indicating a significant gap in asset types even within the same city.

Property taxes in California, according to Prop 13, start at 1 percent, but with local bonds and special assessments, they often rise to between 1.1 and 1.3 percent. In high-priced Santa Monica, this difference can amount to thousands of dollars annually, so checking the actual tax amount before purchasing can help reduce financial burdens.

When applying the two rental figures to compare total yields, the differences are clear. Using the lower figure of $2,302 on a purchase price of $1.7 million results in an annual total rent of $27,624 and a total yield of 1.6 percent. Conversely, applying $3,595 gives an annual total rent of $43,140 and a total yield of 2.5 percent. While this may signal a favorable trend, the fact that rents are declining by over 8 percent remains a significant concern.

Incorporating the 50 percent rule for operating expenses, the net operating income in both cases would drop to around $13,800 and $21,570, respectively, with cap rates falling between 0.8 percent and 1.3 percent. The relatively low rent levels compared to purchase prices are a common characteristic in coastal areas like Santa Monica, which is why many investors prioritize long-term appreciation over cash flow.

It's also worth considering the cash-on-cash return when utilizing financing. A larger down payment reduces monthly mortgage burdens but lowers the return relative to actual cash invested, while increasing the loan proportion raises cash flow burdens but can improve returns on invested cash. Which option is more advantageous depends on individual financial situations.

According to the 1 percent rule, 1 percent of a purchase price of $1.7 million is $17,000, but no rental figure meets this benchmark significantly. In premium coastal areas like Santa Monica, it's realistic to view this rule as not practically applicable. There are also buildings subject to rent stabilization ordinances in this area, which may limit increases based on the year of construction. It's advisable to check whether a property is subject to regulations through the city website or a broker before purchasing.

From a total return perspective, even if rental cash flow is low, long-term appreciation and asset growth from mortgage repayment can contribute to Santa Monica's investment characteristics. However, it remains uncertain how long the recent trend of declining rents will continue, and for families interested in school districts, it's recommended to also consider GreatSchools ratings.

This article is not investment or legal advice, and it is advisable to consult with a professional before making any actual contracts.