Recently, a reader sent a screenshot of an online rental yield calculator, asking which numbers to input in each field. Since they were considering properties in Burbank, I will fill out the screen together to clarify.

The first question is where to find the purchase price. According to Zillow, the average home value in Burbank is $1,097,431. For the rental field, I used a monthly rate of $2,650 based on local data. When these two numbers are entered, the calculator first shows the total yield, which is about 2.90%, calculated by dividing the annual rental income of $31,800 by the purchase price.

The next question was whether this is the end of the calculation. It is not. The total yield does not account for expenses like property taxes or insurance, so the next field needs to include operating costs. The required value here is the cap rate.

The cap rate is the annual net operating income divided by the purchase price. The net operating income is the total rental income minus property taxes, insurance, maintenance costs, vacancy losses, etc., and does not include mortgage principal and interest. In California, the property tax rate is generally 1% due to Prop 13, but when local bonds in Los Angeles County are added, the effective tax rate often rises to between 1.1% and 1.25%.

Using the 50% rule, if we assume operating costs are about half of the rental income, and run the calculator again, the net operating income comes out to about $15,900 annually, and the cap rate drops to around 1.4%. Compared to the initial total yield of 2.90%, this represents a significant decrease, which surprised the reader.

If you plan to purchase with a loan, please also fill in the cash-on-cash return field at the bottom of the calculator. This metric shows the pre-tax cash flow relative to the actual cash invested, including down payment and closing costs. Increasing the loan ratio may raise the perceived return compared to the cap rate, but if interest burdens increase, it could lower it instead.

The rental market in Burbank has shown a 2.41% increase over the past year, and due to the area's characteristics, where many studio industry workers reside, rental demand appears to be steady. However, this is an average for the area, so checking the rental history of actual listings may provide more accuracy.

If you are looking in neighborhoods with school districts preferred by Korean families, there are values that cannot be captured by the calculator alone. While you can refer to metrics like GreatSchools for school ratings, please verify the assigned school for the specific address before purchasing, as boundaries often change.

Although it does not appear anywhere on the calculator screen, it is good to remember the concept of total return. Total return includes not only the monthly rental cash flow but also capital gains, the increase in assets as the loan principal is paid down, and tax benefits from depreciation. In high purchase price areas like Burbank, the cap rate may seem low, but if held long-term, capital gains can represent a significant portion of total returns. However, this can vary with market conditions, so rather than assuming it will always increase, it is advisable to run the calculator each year to check if the cash flow remains manageable. If you are using a loan, remember that your net worth increases by the amount of principal paid each month.

The calculator simply computes the numbers; ultimately, you must decide what values to input and how to interpret the results. By checking total yield, cap rate, and cash-on-cash return, and considering capital gains and asset increases from loan principal repayment, you can get a clearer overall picture. This article is not investment or legal advice, and it is recommended to verify the specific conditions of individual properties with a professional before making any contracts.