When I receive inquiries about wanting to calculate rental yields, I start by comparing Burlington city and its surrounding neighborhoods within Vermont. Even with the same budget, the rental levels and regulatory environments in Burlington and nearby areas can differ significantly.

Looking at Burlington rents, the average rent according to RentCafe is $2,641, which is a 5.15 percent increase from the previous year. A one-bedroom apartment is around $2,050, while two-bedroom units are priced around $3,500. In contrast, neighborhoods slightly outside the city, like the Hill Section or Riverside, have one-bedroom rents ranging from $1,650 to $1,700, showing a nearly $400 difference. This means that even within the same city, the neighborhood can affect the yield calculations.

Applying the 1 percent rule, which suggests that if the monthly rent exceeds 1 percent of the purchase price, the cash flow is not bad, it becomes clear that Burlington's purchase prices are generally higher than the New England average, making it difficult to find properties that meet this criterion. The process of recalculating yields based on cap rates relative to net operating income is particularly important in this market.

Loan conditions follow the same framework as other areas. The down payment for investment properties is higher, ranging from 15 to 25 percent compared to primary residences, and credit scores must start at 620, but scores above 740 are needed to secure favorable interest rates. Interest rates are often 0.5 to 0.75 percentage points higher than those for primary residences. Rental income is only counted as 75 percent of the expected rent for loan qualification, so it is advisable to prepare lease agreements or appraisal rent schedules in advance.

Property taxes in Burlington are definitely on the higher side. The median effective tax rate is 2.11 percent, which is higher than the Vermont state median of 1.92 percent, and the median annual property tax bill reaches $7,783. Compared to the national median of $2,400, the difference is substantial. If you are moving from another state, this aspect can significantly affect your budget calculations, so it is wise to check the actual tax bill when narrowing down properties.

When comparing school districts between the two neighborhoods, differences become apparent. Burlington city has neighborhoods with high school ratings, while the outskirts have relatively affordable areas with decent school reputations. School ratings can be referenced through GreatSchools or Niche, but boundaries often change, so it is advisable to verify the assigned school once the property address is determined. Neighborhoods with stable school districts tend to have shorter tenant search periods, making them worth considering in yield comparisons.

Insurance aspects also need to be compared side by side between the two areas. Landlord insurance differs from standard homeowners insurance in coverage, including rental loss and tenant liability, and premiums are typically higher than for primary residences. It is safer to calculate this cost differently based on neighborhood, just as with the purchase price and rent differences.

In terms of tenant laws, Burlington is an exceptional area even within Vermont. The state itself does not have laws setting rent caps, but Burlington has been implementing its own rent stabilization ordinance since 2022. The scope is narrow, and there have been legal disputes, but the requirement for written notice at least 90 days before a rent increase is indeed enforced. Even within the same county, this ordinance does not apply outside Burlington city limits, so it is advisable to determine whether the property address falls within or outside the city boundaries.

Here's a summary of items to compare before making a decision:

• Check if the property is within Burlington city limits and subject to the rent stabilization ordinance.
• Review the coverage of rental loss and liability in landlord insurance.
• Recalculate actual income after deducting management fees of 8 to 12 percent from the monthly rent.
• Set aside about 1 percent of the asset value annually for maintenance costs.

If you plan to switch to another property later, consider the 1031 exchange to defer capital gains tax. This article is not investment or legal advice, and it is recommended to consult real estate and accounting professionals before finalizing any contracts.