I once created a yield table based on three properties. They were single-family homes in the Chino area. The prices and ages varied slightly. Organizing the numbers made comparison easier.

I started with a baseline. According to Zillow, the average home value in Chino is $772,256. Based on Apartment List data, the median rent in Chino is $2,350 per month. The annual rental income is $28,200. Dividing this by the purchase price gives a total yield of 3.65%.

But we can't stop there. The total yield is a figure that doesn't account for expenses. Property taxes, insurance, and management fees need to be included to get closer to the actual profit.

I calculated the cap rate. This is the annual net operating income divided by the purchase price. The net operating income is the total rental income minus property taxes, insurance, maintenance costs, and vacancy losses. Mortgage principal and interest are not included. California's property tax is typically 1%, but when you add local bonds in San Bernardino County, the effective tax rate usually ranges from 1.1% to 1.25%.

If we apply the 50% rule for operating expenses, assuming they are half of the rental income, the net operating income is about $14,100 annually. The cap rate drops to around 1.8%. Compared to the total yield of 3.65%, this is about half. For the oldest property among the three, adding more maintenance costs changed its ranking.

If you're using a loan, you should also consider the cash-on-cash return. This is the pre-tax cash flow compared to the actual cash invested, including down payment and closing costs. The higher the loan-to-value ratio, the more the perceived return can increase compared to the cap rate. The opposite is true if interest rates are high.

I also referenced the 1% rule. This rule suggests that if the monthly rent is more than 1% of the purchase price, the cash flow is likely to be decent. Plugging in Chino's $2,350 rent against the purchase price of $772,256 gives a ratio of about 0.30%, which falls short of the benchmark. It's not an absolute standard, but it's worth considering.

Chino rents have increased by 2.4% in the past year. Demand is relatively decent. However, since each property has different rental histories, it's better not to rely solely on the regional average for judgment.

Focusing only on cash flow indicators can lead to missing out on total returns. Total returns include rental cash flow, capital appreciation, asset growth from loan principal repayment, and tax benefits like depreciation. Among the three properties, the cheapest one had the highest cap rate, but its location seemed to offer limited potential for future capital appreciation. Conversely, the property with the highest purchase price had a lower cap rate but could be more advantageous in terms of total returns over the long term due to its school district and accessibility.

It's also easy to forget that the loan principal is gradually being repaid each month. The portion of the principal in the repayment amount accumulates as net assets each month. Even if the rental cash flow isn't large, when combined with the principal repayment and capital appreciation, the total return can often be much better than the cap rate figure.

• Total Yield = Annual Rental Income / Purchase Price x 100
• Cap Rate = Annual Net Operating Income / Purchase Price x 100
• Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Actual Cash Invested x 100

In areas preferred by Korean families, the purchase prices tend to be high, resulting in lower yield indicators. However, the risk of vacancy is lower. While school ratings can be referenced from sources like GreatSchools, the boundaries change frequently, so it's advisable to check the assigned school for the specific address before purchasing.

I compared the three properties while also calculating the cash-on-cash return. Changing the loan-to-value ratio yielded different results each time. A higher down payment ratio brought the cash-on-cash return closer to the cap rate, while increasing the loan ratio sometimes lowered the return due to interest burdens. There isn't just one answer. Ultimately, each of the three properties had its own advantages, and the final choice depended on the investment period, the level of risk one could handle, and the conditions for securing a loan. This article is not investment or legal advice, and it's recommended to verify the specific conditions of each property with a professional before making any actual contracts.