Last year, an investor who requested a consultation purchased a condo in San Diego and calculated the annual rental income without factoring in vacancy periods at all. They simply multiplied the rental price listed in the property advertisement by 12 months to determine the yield, but if they overlooked the one or two months of vacancy that occur between tenants, the numbers can be significantly off. Using this case as a reference, I would like to outline how to calculate rental income in a way that is closer to reality.

According to Zumper, as of August 15, 2026, the average rent in San Diego is $2,768, which is a 1% decrease over the past year. For a two-bedroom unit, the average rent is around $2,995. Zillow reported that as of May of the same year, the average home value in San Diego was $1,007,800, reflecting a 2.3% decline from the previous year. According to KPBS, rents in San Diego have recently dropped more significantly than in 19 of the top 20 markets nationwide, a phenomenon attributed to increased supply. This number clearly indicates that as inventory increases, the time to find tenants may also lengthen.

Property taxes should also be considered. In California, under Prop 13, the base tax rate is capped at 1% of the purchase price, but when local bonds or special assessments are added, the actual burden often rises to between 1.1% and 1.3%. Families moving from other states may be surprised by this aspect. If coming from a state known for low property taxes, it's wise to calculate the difference in annual payments in advance. Since assessment criteria vary by county, it's advisable to check the actual tax bill for the specific address before purchasing.

Looking at the total yield, if we apply a purchase price of $1,000,000 with a monthly rent of $2,768, the annual total rent would be $32,216, resulting in a total yield of about 3.3%. This falls significantly short of the commonly referenced 1% rule, which suggests that a monthly rent of 1% of the purchase price, or $10,000, is necessary for smooth cash flow. It's important to note that this rule may not apply well in high-priced markets like San Diego.

Specifically, the rent for a one-bedroom unit has decreased by 5.6% over the past year, while two-bedroom rents have dropped by 7.5%, marking the largest declines among the top 20 markets. Studios are at $1,875, and four-bedroom units or larger are around $5,100. The varying decline rates by bedroom size can also serve as a reference when assessing vacancy risks while selecting properties.

Returning to the issue of vacancies, the investor's calculation mentioned earlier assumed that all 12 months of rent would be collected annually. However, considering the time required for cleaning, repairs, and listing the property each time a tenant changes, an annual vacancy of about one month is not uncommon. When accounting for vacancy losses, the annual total rent would decrease to around $30,446, and to arrive at a number that reflects actual profitability, we must subtract operating costs, including property taxes, insurance, maintenance fees, and management fees, from the net operating income to calculate the cap rate.

Applying the 50% rule, assuming operating costs are about half of the total rent, the net operating income is estimated to be around $17,000 annually. Dividing this by the purchase price of $1,000,000 results in a cap rate of about 1.7%. The actual cash-on-cash return, which reflects the real yield when leveraging loans, will vary depending on the size of the down payment and interest rate conditions, making it difficult to make investment decisions based solely on the cap rate.

From the perspective of total returns, which include appreciation and asset growth from loan principal repayment, the story may change slightly. However, in the current adjustment phase of the San Diego market, it is prudent to calculate based on short-term price increases. Even in school districts popular with Korean families, school assignment boundaries change frequently, so it's advisable to check indicators like GreatSchools or Niche beforehand and reassess based on the specific address before purchasing.

This article is not investment or legal advice, and it is recommended to consult with real estate professionals and accountants before finalizing any contracts. It's worth remembering that overlooking even one vacancy rate can lead to significant miscalculations.