I once conducted a consultation to review the profitability of rental properties. I lined up the property price and expected rent side by side and started calculating. Lexington is well-known for its school district near Boston, which maintains steady demand for actual residents, but from an investor's perspective, the return on investment tells a different story.

According to Zillow data, the average home value in Lexington as of June 2026 is $1,626,351 (Zillow, as of June 30, 2026). At the same time, the average rent reported by Zillow Rental Manager for Lexington is $3,565 per month. With just these two numbers, we can calculate the simplest indicator, the gross return rate.

The annual rental income is $3,565 multiplied by 12, which equals $42,780. Dividing this by the purchase price of $1,626,351 gives a gross return rate of about 2.6 percent. Since the purchase price is relatively high compared to the rent, the gross return rate may not seem very attractive.

However, the gross return rate does not reflect any operating costs. What we need here is the net return rate, or cap rate. To get a more accurate picture of profitability, we need to divide the net operating income, which is the income after deducting property taxes, insurance, management fees, maintenance costs, and vacancy losses, by the purchase price.

According to data from the town of Lexington, the residential tax rate for the fiscal year 2026 is $12.31 per $1,000, which translates to about 1.23 percent (Lexington Town, FY2026 tax rate data). Since tax rates vary by town within Massachusetts, it's advisable to verify based on the actual property address.

If we apply the 50 percent rule and assume operating costs are half of the rental income, the net operating income would be around $21,390. The cap rate, when divided by the purchase price, is around 1.3 percent. This number is closer to reality than the gross return rate, but it is still not high.

In areas like Lexington, where the purchase price is significantly higher than the rent, the cash flow coming in each month often takes a backseat to the appreciation of property values and the accumulation of assets through mortgage principal repayment. When calculating cash-on-cash return, it's good to keep in mind that the cash flow relative to the total investment, including down payment and closing costs, may come out low in Lexington.

If you are accustomed to the jeonse or monthly rent structure in Korea, you might find this return rate low. Major school districts in the U.S. are generally not cash flow-oriented investment opportunities but rather markets where asset accumulation and stable living conditions are intertwined.

Applying the 1 percent rule, which suggests that if the monthly rent is more than 1 percent of the purchase price, the cash flow is likely to be healthy, to Lexington means that the required rent would need to be over $16,260 per month, indicating that this area is inherently challenging to meet the 1 percent rule.

It's also worth noting the time it takes from listing a property to signing a contract. Recent data shows that properties in Lexington go pending within an average of 15 days (Redfin, 2026). This indicates a short vacancy period, so it seems reasonable to be somewhat conservative with the vacancy loss item included in the cap rate calculation.

The level of rent itself is not low. The rent in Lexington is reported to be about 70 percent higher than the national median rent (Zillow, 2026). Yet, the reason the gross return rate and cap rate are low is ultimately due to the purchase price being significantly higher. Judging profitability based solely on rent can lead to misinterpretation in this area.

It's more accurate to read the three indicators together within the concept of total returns. Even if cash flow is thin, if asset appreciation and capital gains fill that gap, a low cap rate does not necessarily mean a bad investment. However, it's important to always keep in mind that price appreciation is not a guaranteed outcome.

If the goal is investment, it's advisable to compare with nearby areas that have higher cap rates rather than focusing solely on Lexington. If prioritizing actual residence and school districts, it's better to center your judgment on capital gains and asset appreciation. Since school district boundaries change frequently, be sure to verify the assigned school for the specific address before purchasing. Investment and tax-related matters can vary by state and county, so it's wise to consult with real estate and accounting professionals before finalizing any contracts.