$954,662. This is the average home value in Anaheim as reported by Zillow as of June 30, 2026. A family looking for rental properties saw this number, but they only calculated the rent and checked property taxes and insurance later, resulting in a significant reduction in their expected income.

According to Zillow data from the same time, the average rent for all property types in Anaheim is $2,503 per month. When annualized, this amounts to $30,036, and dividing this by the purchase price gives a total return rate of about 3.15%. At first glance, this number doesn't seem bad, but the problem arose next.

The family considered the total return rate as the actual income rate. In California, Proposition 13 sets the basic property tax rate at 1%, but when local bonds and special assessments are added, the effective tax rate often rises to between 1.1% and 1.25%. For a home valued at around $950,000, this means annual property taxes could be between $10,000 and $12,000.

When landlord insurance is added, operating costs become larger than expected. Net operating income is the amount left after subtracting property taxes, insurance, maintenance costs, vacancy losses, etc., from total rental income, and it does not include mortgage principal and interest. The value obtained by dividing this net operating income by the purchase price is the cap rate, and if we assume operating costs to be about half of rental income based on the 50% rule, the cap rate can drop to around 1.5%.

The gap between the total return rate of 3.15% and the cap rate of 1.5% is particularly pronounced in areas like Anaheim where purchase prices are high. This is because the proportion of property taxes and insurance is relatively large compared to rent. If this aspect is not included in the calculations from the beginning, profitability may appear inflated compared to reality.

Looking at Orange County as a whole, the vacancy rate for multi-family homes was 4.3% in the second quarter of 2026, slightly up from 3.8% a year earlier. Nevertheless, the net absorption rate increased by 29.8% compared to the same period last year, indicating steady rental demand. During the same period, the average requested rent rose to $2,727 per unit, an increase of 1.8%.

If financing is used for the purchase, the cash-on-cash return must also be checked to complete the overall picture. This metric calculates the pre-tax cash flow relative to the actual cash invested, including down payment and closing costs, and can be higher than the cap rate depending on the loan ratio, or lower if the interest burden is significant.

In school districts where Korean families tend to cluster, the purchase prices are often higher, leading to a tendency for both total return rates and cap rates to be lower. However, this can be compensated by stable tenant demand and long-term capital appreciation. School ratings can be checked using metrics like GreatSchools, but since boundaries change frequently, it's advisable to verify the assigned school for the specific address before purchasing.

One more aspect to consider is the concept of total income. The monthly rental cash flow is not the only factor; capital appreciation, the increasing asset value as the loan principal is repaid, and tax benefits like depreciation must also be included to complete the overall picture. In areas like Anaheim where purchase prices have consistently risen, even if the cap rate is low, capital appreciation can represent a significant portion of the total return over the long term. However, since it cannot be assumed that prices will always rise, it is also prudent to check whether the structure can sustain itself based solely on cash flow. If financing is used, remember to factor in that net worth increases by the amount of principal repaid each month.

Ultimately, when calculating rental income, property taxes and insurance must be included as separate items. Judging solely by the total return rate can lead to significant discrepancies in high purchase price areas like Anaheim. This article does not constitute investment or legal advice, and since tax rates and insurance can vary by county and insurer, it is advisable to consult with a professional to verify the specific conditions of each property before making a contract.