There are three main items to check in order: the sale price compared to rent, operating costs including property taxes, and cash flow if a loan is involved. Recently, when looking at several properties in Buffalo and examining these three factors, many differences that are not apparent from just the rental price alone become clear.

According to Zillow, the average rent in Buffalo is $1,400, and the average home value is $246,321. The first total yield to check is calculated by dividing the annual rental income of $16,800 by $246,321, resulting in a yield of 6.8%. Buffalo has relatively low sale prices compared to other cities in New York State, making this yield stand out.

The second item to check is operating costs. For the 2025 to 2026 tax rate in Buffalo, the city rate is $4.030864, the school rate is $2.484594, and the Erie County rate is $5.604583, totaling about $12.12 per $1,000 of assessed value. When converted to an effective tax rate, this is roughly 1.2%, meaning for a property valued at $246,321, the property tax would be approximately $2,960 per year. Adding insurance, maintenance costs (about 1% of property value, or $2,463), management fees, and vacancy losses, operating costs can account for about half of total income. Applying the 50% rule, the net operating income would be around $8,400, resulting in a cap rate of about 3.4%.

The third item to check is the cash-on-cash return. In Buffalo, where sale prices are low, the burden of the down payment is relatively small, so even with a 20% down payment, the actual cash invested is much less than in properties in New York City or New Jersey. Dividing the pre-tax cash flow, excluding mortgage principal and interest, by this invested cash can yield a cash-on-cash return that is higher than the cap rate, due to the relatively large leverage effect.

Within Buffalo, there are clear differences in property taxes and rental demand between areas with high and low school district ratings. If Korean families prioritize school districts, they should refer to ratings from GreatSchools or Niche, but since school district boundaries change frequently, it's advisable to check the assigned school for the specific address before purchasing.

If moving from another state, it's important to note that the property tax structure in Erie County may differ from the previous residence, so checking the tax rate variations by ZIP code can be beneficial.

Using the 1% rule, 1% of $246,321 is $2,463, but the actual rent is $1,400, which falls short of this benchmark. However, since the sale prices are low, the total yield and cap rate tend to be relatively higher than in other cities in New York State.

Another important factor to check is total returns. While the cap rate and cash-on-cash return only show cash flow at the time of purchase, actual investment performance must also include loan principal repayments and capital gains. Since Buffalo has low sale prices, the leverage effect can be significant, but demand may vary based on local economic conditions, so risks should also be assessed.

To summarize the items to check:

• Property tax - effective tax rate of about 1.2% combined for city, school, and county
• Insurance - check for history of winter freeze damage
• Maintenance costs - about 1% of property value
• Management fees - 8 to 12% of monthly rent
• Vacancy losses

All five items must be considered to accurately calculate the cap rate.

When comparing properties side by side, checking the differences in tax rates by ZIP code can lead to more accurate cap rate calculations.

By comparing areas with high school ratings, like Elmwood Village, to those without, one can see that the property tax burden increases in proportion to the difference in sale prices.

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