In Salt Lake City, I once received a consultation asking which property would yield better rental income: a condo close to downtown or a single-family home a bit further out. The purchase price for the outer property was lower, but the difference in rental prices also needed to be considered to find the answer. The first question that comes to mind is how much would actually be left after buying this house and renting it out.

The most basic measure is the total return rate. This is calculated by dividing the annual rental income by the purchase price. According to Zillow, the median monthly rent in Salt Lake City is $1,600, and Redfin reports that the median home price over the last three months is $609,000. Dividing the annual rental income of $19,200 by the purchase price gives a total return rate of 3.15%. But can we make a judgment based solely on this number? Not really, as this figure does not account for any expenses.

So, how much would property tax be? The effective property tax rate in Salt Lake City is 0.94%, which is higher than the county-wide median of 0.57%. One point to note is that Utah has a system that reduces the taxable value of a primary residence to 55% of its market value, and non-residential rental properties do not receive this reduction. This means that even the same house could have a higher effective property tax burden when rented out compared to when it is owner-occupied. Applying the 50% rule for operating expenses, the net operating income would be $9,600 per year, and the cap rate calculated by dividing this by the purchase price drops to 1.58%, which is much lower than the total return rate.

What happens if we take out a loan? Assuming a 20% down payment and 3% closing costs, the actual investment would be $140,070. If we take out a loan of $487,200 at a fixed interest rate of 6.67% for 30 years based on Freddie Mac's August 2026 rates, the monthly principal and interest payment would be $3,135, totaling $37,619 annually. Subtracting this from the net operating income of $9,600 results in an annual loss of $28,019. In cash-on-cash terms, this means a drop to about -20%.

Why is there such a big difference? The rental multiple compared to the purchase price is as high as 31.7 times. This is the highest level among the cities examined this time. According to the 1% rule, which suggests that if the monthly rent is more than 1% of the purchase price, the cash flow is likely to be healthy, this property's rent is only 0.26% of the purchase price. The higher the purchase price, like with downtown condos, the more this gap tends to widen.

Of course, this does not mean that buying a house in Salt Lake City is a bad idea. While the rental income may seem burdensome at first glance, when considering the principal repayment of the loan accumulating as an asset and the potential for capital gains, the overall picture can change. Some investors take a long-term approach, looking at the growth of the tech industry in the nearby Silicon Slopes, and areas near good school districts that Korean families are interested in tend to sell quickly when properties become available. However, school district boundaries change frequently, so it's advisable to check the assigned school for the specific address before purchasing.

Salt Lake City is a capital city and a hub for large hospitals, universities, and tech companies, so the demand for rentals is generally considered steady. In recent years, the supply of new apartments has increased, leading to a slowdown in rent increases compared to the past, and this trend is reflected in the total return rate calculated earlier. Single-family homes in the outer areas have relatively low supply and shorter vacancy periods, but downtown condos can see fluctuations in rent based on new supply, so it's safer to review recent supply plans before making a purchase.

When comparing the two properties, the steps taken were as follows:

• First, compare the total return rate based on rent and purchase price.
• Next, reflect property taxes and operating expenses to compare using the cap rate.
• Finally, include loan conditions to check the cash-on-cash return rate before making a decision.

Property tax rates, mortgage rates, and the availability of residential tax reductions in Utah can vary depending on the property and timing, so it's advisable to verify with the county assessor's office and lending institutions before making an actual purchase. This article does not constitute investment or legal advice, and it is recommended to consult with a professional before entering into any contracts.