A client wanted to rent out a townhome in Lynnwood. They excluded the HOA fees from their calculations. They also estimated property taxes roughly. The result was a profit margin that looked better than reality.

The median home price in Lynnwood is about $720,000 as of March 2026 (Houzeo). The monthly rent is around the median of $2,245 (Zumper, August 2026). Dividing the annual rental income of $26,940 by the purchase price gives a total return of 3.74%.

Lynnwood is part of Snohomish County. The effective property tax rate in this county is about 0.92%, and the median annual tax is $5,873 (propertytaxalmanac.com). If it's a townhome or condo, HOA fees will apply separately. To find the true net operating income, you must also add insurance, maintenance costs, management fees, and vacancy losses.

Recalculating with the 50% rule, the net operating income is $13,470 annually. The cap rate drops to 1.87%. If the property has HOA fees, it could be even lower. If property taxes are estimated roughly or HOA fees are completely excluded, the difference between the apparent return and the actual return can be significant.

If financing is involved, the gap widens further. Assuming a 25% down payment and a 30-year mortgage at around 6.75%, the annual principal and interest payments will far exceed the net operating income. Cash-on-cash returns could drop to around -14%. Including HOA fees, the actual cash flow would likely be worse.

Lynnwood has good access to Seattle and a steady demand from Korean families. There are several areas with decent school districts. However, school district boundaries change frequently. It's advisable to check the assigned school for the specific address before purchasing.

According to the 1% rule, Lynnwood is not much different. 1% of the purchase price is $7,200 monthly, but the actual rent is $2,245, which is about 0.31% of the purchase price. Adding HOA fees results in an even tighter cash flow picture.

If it's an older townhome, it's also important to check whether the HOA has sufficient reserves, or reserve funds. Communities with insufficient reserves may impose special assessments later for roof or exterior repairs, leading to unexpected large expenses.

Lynnwood is considered one of the areas that can absorb rental demand due to its lower purchase prices compared to Seattle and Bellevue while still being commutable. However, whether this relative attractiveness will be maintained depends on local development plans and transportation conditions.

For that client, I created a new line item for HOA fees in the initial table. After deducting HOA fees, property taxes, and insurance from the monthly rent, a significantly lower number remained compared to the initial calculation of net operating income. They seemed to understand why the cap rate was decreasing only after visually confirming each item.

If you dislike the burden of HOA fees, considering a single-family home from the start is also an option. However, single-family homes often have higher purchase prices, so while you save on HOA fees, your initial investment may increase.

Ultimately, regardless of the type of housing chosen, the number of items to include in calculations may differ, but the order remains the same. It's safer to calculate net operating income by deducting taxes, insurance, management fees, and HOA fees (if applicable) from the rent, and then apply loan conditions to calculate cash-on-cash returns.

When viewing properties, it's also important to request the HOA rules to check for any rental restrictions. Some communities may limit the number of units available for rent in advance, so even if the calculations look good, there may be cases where renting is not possible from the start.

If you plan to rent out a townhome or condo, you must include HOA fees in your calculations. Property taxes should also be verified with accurate figures, not rough estimates. It's safer to consider not just total returns but also cap rates and cash-on-cash returns. This article is not investment or legal advice, and consulting a professional before making contracts is recommended.