I have had the experience of calculating rental yields by comparing a few properties side by side. I compared single-family homes and condos in Albany priced around $300,000, and while they seemed similar at first glance based on the sale price, the rankings often changed when factoring in rent and property taxes. So, what is the first number we should check?

According to Zillow's rental manager, the average rent in Albany is $1,600, and the average home value is $335,126. Using these numbers to calculate the total yield gives us an annual rental income of $19,200 divided by $335,126, resulting in a yield of 5.7%. Within New York State, Albany has significantly lower sale prices compared to Brooklyn or New York City, making this yield quite noticeable.

So, how much is the property tax? According to Ownwell data, Albany homeowners pay an average of $5,235 in property tax on homes valued at around $223,000, which translates to an effective tax rate of about 2.35%. For a property priced at $335,126, we can estimate the property tax to be around $7,875 per year. When we add insurance, maintenance costs (approximately 1% of property value, or $3,350), management fees, and vacancy losses, the operating costs can account for about half of the total income.

The most common question is how much net operating income remains. Applying the 50% rule, the net operating income would be around $9,600 per year, and the cap rate calculated by dividing this by the purchase price would be about 2.9%. Compared to the total yield of 5.7%, this represents a significant reduction, highlighting how much of a role operating costs play.

Next, people often wonder about the actual perceived yield when a mortgage is involved. The cash-on-cash return, which divides pre-tax cash flow by the actual cash invested as a down payment, yields a different number than the cap rate, and the greater the burden of principal and interest repayment, the lower the cash-on-cash return tends to be compared to the cap rate.

It's also worth noting that property taxes and school district ratings can vary significantly within Albany. If Korean families want to check school districts, they should refer to ratings from GreatSchools or Niche, but since school district boundaries change frequently, it's advisable to verify the assigned school for the specific address before purchasing.

For families moving from other states, it's good to check in advance as New York's unique property tax and school district tax structures may differ from their previous residence.

The 1% rule is also worth checking. 1% of $335,126 is $3,351, but the actual rent is around $1,600, which does not meet this benchmark. However, this does not mean it's a bad market; the sale prices are low enough that the total yield and cap rate are already relatively favorable.

There's one more question to consider: can we just look at rental income? The answer is no. If there's a mortgage, the principal is gradually repaid each month, building equity, and over time, the sale price can fluctuate. The total return includes both capital gains and principal repayment, so it's safer not to base investment decisions solely on cap rate or cash-on-cash return.

Insurance costs should also be checked. In Albany, insurance premiums may be higher than in other areas due to winter freeze and snowfall damage, so obtaining insurance quotes for each property in advance can help with budgeting.

When comparing properties side by side, it's advisable to also check the school district assessments listed on the property tax bill. Tax burdens can vary significantly depending on the school district, even within the same city.

For example, areas with higher school ratings often have sale prices that are above average. Considering these regional differences, it may be more prudent to evaluate properties based on both school districts and tax burdens rather than relying solely on cap rates.

This article is not investment or legal advice, and it is recommended to consult with an accountant or real estate professional before making any actual contracts.