Someone asked about the rental yield of properties in Palm Springs, planning to rent out a second home after retirement. They wanted to know if it was possible to determine the yield based on the purchase price and monthly rent, but it was important to clarify what type of yield they were referring to first.

Looking at the recent market, rental levels in Palm Springs vary by source. Zumper reports the median rent as $2,750 as of May 2026, while RentCafe lists the average at $2,099 and $2,353 for two-bedroom units. The average home value according to Zillow is $619,612, which has decreased by 1.7% over the past year. For example, let's assume a purchase price of $620,000 and a monthly rent of $2,353 for a two-bedroom property.

The annual rental income would be $28,236. The total yield would be 4.55%. However, when factoring in operating expenses to calculate the cap rate, the story changes. Applying the 50% rule, the net operating income would be about $14,118, and the cap rate drops to 2.28%. The effective tax rate in Riverside County is reported to be around 0.82%, and due to the nature of the tourist area, short-term rental management costs could further increase the proportion of operating expenses.

According to the 1% rule, the monthly rent should be at least 1% of the purchase price, which would be $6,200, to ensure stable cash flow, but this example falls short of that. However, since Palm Springs is an area with demand for short-term rentals, operating primarily during peak seasons instead of year-round could change the actual rental income.

If financing is involved, the cash-on-cash return also needs to be calculated separately. This is based on the actual cash invested, including the down payment and closing costs, which may yield different results than the cap rate. If part of the retirement funds is being used, it seems necessary to consider both the stability of cash flow and total returns.

Breaking down operating expenses, maintenance costs typically hover around 1% of the asset value, but in areas like Palm Springs, where cooling loads are high in summer, these costs can be higher. Management fees for long-term rentals are 8 to 12% of the rent, while short-term rentals incur additional cleaning fees and platform commissions, often resulting in lower net operating income than what cap rate calculations suggest.

While the cash flow numbers may seem disappointing, from a total return perspective, one must also consider capital appreciation and loan principal repayment. If approaching this as retirement funding, it may be better to prioritize properties that generate stable net cash flow over those with insufficient immediate cash flow. Ultimately, in this consultation, I advised comparing properties with slightly higher cap rates instead of those in the 2% range.

Short-term rentals may have different permits or regulations by city, so it's advisable to check the local short-term rental ordinances before purchasing.

Insurance costs should also be taken into account. In recent years, it has been reported that obtaining homeowners insurance has become more challenging across California, with rising premiums. The exact insurance cost varies by parcel and insurer, so it's hard to generalize, but obtaining quotes from at least two or three insurers before purchasing can help in realistically estimating operating costs.

Ultimately, the key takeaway from this consultation was not to lump everything under the term yield, but to distinguish whether it's total yield, cap rate, or cash-on-cash return before approaching the topic. Since this is a decision involving retirement funds, carefully reviewing each number can help reduce future regrets. In areas like Palm Springs, where purchase prices and rents fluctuate seasonally, it's especially helpful to look at trends over several years rather than just the average of one or two years. This article does not constitute investment or legal advice, and it is recommended to consult with a professional before making any actual contracts.