A couple recently visited my office and asked me to calculate how much profit they could make by renting out a condo in Hartsdale. They thought that simply providing the purchase price and monthly rent would allow for an easy calculation of the return on investment, but as we began the calculations, I realized there were more factors to consider than they expected. Every time I receive such inquiries, I notice that while the method for calculating rental income isn't difficult, the results can vary significantly depending on which numbers are used and where they are applied.

The first metric to consider is the overall return on investment. Simply put, this number shows what percentage the annual rental income is compared to the purchase price. As of 2026, the market price for condos in Hartsdale is around $680,000 (Zillow), and the average rent in the area is about $2,088 per month, which has increased by over 16% compared to a year ago (according to Redfin rental market data). When converted to annual rental income, this amounts to approximately $25,056, and dividing this by the purchase price gives an overall return of about 3.7%. At first glance, this number doesn't seem bad, but the catch is that this overall return does not account for any expenses.

If the terminology is unfamiliar, think of it this way: if the overall return is the revenue, then the cap rate corresponds to the operating profit. The average property tax rate in Westchester County is reported to be around 1.6% (tax-rates.org), so for a property priced at $680,000, the property tax alone exceeds $11,000 annually. When you add in insurance, maintenance costs, and vacancy losses, total expenses can often account for nearly half of the rental income. Applying the 50% rule, the estimated net operating income would be around $12,000 per year, and dividing this by the purchase price results in a cap rate of less than 2%. The difference between the overall return of 3.7% and the cap rate of under 2% is what the couple initially overlooked.

If a mortgage is involved, the situation becomes even more complex. The cash-on-cash return measures the pre-tax cash flow relative to the actual cash out of pocket, which includes the down payment and closing costs. Because mortgage principal and interest payments are factored in, the cash-on-cash return often comes out lower than the cap rate, and during periods of high interest rates, it can even result in a negative return. When comparing the same property purchased entirely with cash versus one financed with half a loan, you can see that while the cap rates may be the same, the cash-on-cash returns yield completely different figures.

A similar picture emerges when looking at the price-to-rent ratio. The value obtained by dividing the purchase price by the annual rental income comes out to around 27, and a higher ratio often indicates that renting is relatively more advantageous than buying. I showed this ratio to the couple, explaining that if their goal is to live in the property, it might be worth considering renting first, while for investment purposes, focusing on potential appreciation and long-term holding rather than immediate cash flow seems to be a more realistic approach. I reiterated that judging both living and investment purposes by the same standard can easily lead to confusion.

In summary, the order of checks should be as follows:

• Establish the big picture with the overall return calculated by dividing annual total rental income by the purchase price.
• Calculate the cap rate using net operating income after deducting property taxes, insurance, management fees, maintenance costs, and vacancy losses.
• If financing is used, separately calculate the cash-on-cash return based on the actual cash invested.

In areas like Hartsdale, where purchase prices are high and property tax burdens are significant, relying solely on the overall return can lead to a substantial difference in the actual money left in hand. It's also important to remember that to accurately depict total returns, one must consider potential appreciation and asset growth from mortgage principal repayment. Areas with good school districts tend to have higher purchase prices, so it's worth examining whether there is consistent rental demand based on school district quality. However, school district boundaries can change frequently, so I recommend checking the assigned schools based on the property address. Property tax rates and rental prices can vary by county and property type, so it's advisable to verify the latest data when reviewing actual listings. This article is not investment advice, and it is safe to consult with a real estate professional and accountant before finalizing any contracts.