There was someone comparing properties between Newark and Philadelphia. Both cities are near universities, so the rental demand is stable, which is a valid point. However, during the calculation process, they only considered Newark's low property tax and completely left out the difference in insurance costs. When comparing the two areas side by side, it's surprisingly common to overlook such one-sided advantages.

According to data from Newark in 2026, the average rent for an apartment is $1,703 per month, and the median home price is around $395,000. If we plug these numbers in to calculate the total return rate, we get about 5.2 percent, which is the annual $20,436 divided by the purchase price. Delaware has a relatively low property tax burden, with the Tax Foundation reporting an average effective property tax rate of 0.53 percent, which is about half of the national average of 0.9 percent. From this perspective, Newark certainly seems advantageous.

However, when calculating the cap rate, one should not rely solely on property tax. To put it simply, the cap rate is calculated by dividing the net operating income (NOI), which is the total income minus not just property tax but also insurance, management fees, maintenance costs, and vacancy losses, by the purchase price. While Newark has low property taxes, the unique winter freeze risks and the proportion of older homes in Delaware mean that insurance costs are not as low as one might expect. Applying the 50% rule, if we assume total operating costs are half of the total rental income, the NOI would be $10,218 annually, resulting in a cap rate of 2.6 percent.

When you add in financing, a different picture emerges. Assuming a 30-year fixed rate of 6.67 percent as of August 13, 2026, from Freddie Mac, with a 20 percent down payment, the loan principal and interest would be around $24,000 annually. The structure makes it difficult to cover this payment with the NOI alone. While Newark may appear better than other properties near Philadelphia based on the cap rate, when you factor in cash-on-cash returns, the gap can narrow or even reverse.

If the terminology is unfamiliar, think of it this way: total return is revenue, cap rate is operating profit margin, and cash-on-cash is the actual perceived return rate that includes financing. When the three indicators yield different results, it's essential to consider all three together to see the real picture. In areas like Newark, where property taxes are low, this advantage may help at the cap rate stage, but it can be overshadowed by other variables like insurance or management fees at the cash-on-cash stage.

When applying the 1% rule to compare Newark and Philadelphia, notable differences emerge. Dividing Newark's $1,703 monthly rent by the purchase price of $395,000 yields 0.43 percent. Properties near Philadelphia often have lower purchase prices but higher property taxes, which can result in similar or even lower ratios. Ultimately, this means that having low property taxes does not automatically make it advantageous according to the 1% rule.

It's also worth considering the total revenue perspective. Even during periods when cash-on-cash is negative, the loan principal gradually accumulates as an asset, and Newark, being near the University of Delaware, tends to maintain a relatively low vacancy risk. However, capital gains are not a guaranteed figure but a possibility, so they should be viewed separately from the currently calculable cap rate or cash-on-cash returns.

If you are preparing to move from another state, I hope you won't assume that the absence of a state sales tax means the overall costs are lower. While there is no sales tax, the structure of property taxes and insurance differs from neighboring states, so when comparing actual total living costs, it's essential to consider the entire operating cost rather than just one tax item.

Delaware has varying property tax rates and assessment methods by county, with New Castle County being among the highest. Before signing a contract, please verify the exact tax rate and insurance estimates for the specific address. This article is not investment or legal advice, and if you are about to make a purchase, I recommend recalculating with an accountant or real estate professional.