Among the cases I examined, there was an investor comparing the rental yields of three properties in Monterey side by side. While the purchase prices were higher for condos with good ocean views, the rental yields often turned out to be lower.

Let's start with the rental levels in Monterey. According to Zillow rental manager data, the average rent is $2,900 as of 2026. RentCafe reports $2,795, and Zumper presents a median of $2,595. The sales price, based on Zillow, indicates that the average home value in Monterey is $1,180,394, which has decreased by 1.6 percent over the past year. For example, let's assume a condo with a purchase price of $1,180,000 and a monthly rent of $2,900.

The annual rental income is $34,800. The total yield is only 2.95 percent when divided by the purchase price. If we apply the 50 percent rule for operating expenses, the net operating income is about $17,400, and the cap rate drops to 1.47 percent. The effective property tax rate in Monterey County varies by source, with some reporting as low as 0.68 percent. However, there may be additional local assessments, so it's best to check the actual tax bill for accuracy.

The other properties being compared had lower purchase prices but were in areas with steady rental demand, resulting in cap rates reaching the mid-2 percent range. Judging solely by the purchase price can lead to missing important details. Conversely, properties with a premium for views or location often attract investors despite lower cap rates, based on expectations of long-term appreciation. Focusing only on cap rates can easily overlook this total return perspective.

According to the 1 percent rule, the monthly rent should be 1 percent of the purchase price, or $11,800, to meet the criteria for stable cash flow. However, in high-priced areas like Monterey, properties that meet this standard are rare. Therefore, many investors in Monterey also consider the potential for short-term rentals based on asset value and tourist demand, rather than just cash flow.

A low cap rate doesn't mean you should give up just because cash flow is limited. Total returns include cash flow, appreciation, loan principal repayment, and tax benefits from depreciation. In areas like Monterey, where purchase prices have consistently risen, even a cap rate in the 1 percent range can lead to significantly different total returns when factoring in appreciation at the time of sale a few years down the line. However, since prices can fluctuate, it's not guaranteed that they will always rise.

It's also important to break down operating expenses in detail. Maintenance costs are typically around 1 percent of the asset value, and property management fees usually range from 8 to 12 percent of the monthly rent. Given the nature of tourist areas, if operated as short-term rentals, cleaning fees and platform commissions can add to the operating costs, making them proportionally higher than long-term rentals, which should also be discussed in comparisons.

Property taxes, insurance, and HOA fees can vary significantly depending on the parcel and building type. Each property should be checked individually.

In tourist areas like Monterey, vacancy loss should also be carefully considered. If there is a significant difference in rental demand between peak and off-peak seasons, it is necessary to reflect the vacancy periods seasonally rather than using an annual average rent to get closer to the actual cap rate. For investors who have dealt with real estate in Korea, this seasonality may feel unfamiliar, but it can be understood as a unique characteristic of Western U.S. tourist destinations.

Ultimately, the conclusion I conveyed to the investor comparing the three properties was simple. The property with the highest cap rate is not always the right choice, and it is essential to select a property that aligns with one's financial plan after considering vacancy patterns and management methods. Don't judge properties as expensive or cheap based solely on the purchase price; organizing rent and operating costs in a table often reveals a different ranking than initially expected. Based on nearly 20 years of observing this market, I have frequently seen investors who skip this step and make decisions based solely on purchase price regret their choices a few years later. This article is not investment advice. Please consult with a professional before making any purchases.