When discussing with those reviewing rental properties for the first time, the primary concern is often whether the rental will be successful and if there are any issues with tenant laws. Using Riverside properties as an example, let's go through the items to check in order.

The first is the rental market rate. As of 2026, the average rent in Riverside is $2,234 per month, which is a 1.24% increase from the previous year (RentCafe). Studios average $1,446, one-bedroom units are around $1,922, and two-bedroom units are approximately $2,267. There are areas like La Sierra South where rents are in the $1,860 range, so it's important to consider neighborhood variations to select properties that meet the 1% rule.

The second is the loan conditions. For investment properties, the down payment is typically higher, ranging from 15% to 25%, compared to owner-occupied homes. A credit score of 620 is the minimum, but a score above 740 is preferable for better interest rates. Interest rates are also set 0.5 to 0.75 percentage points higher than for owner-occupied homes (Fannie Mae, Freddie Mac guidelines). Rental income is only considered up to 75% of the expected amount for loan qualification, and a lease agreement or appraisal rent schedule is required.

In addition to these conditions, the cap rate should also be considered. The cap rate is calculated by dividing the net operating income by the purchase price, and it should be based on the actual numbers after deducting vacancy periods, management fees, property taxes, and insurance, rather than just multiplying the advertised rent. If acquiring a property with tenants, it's advisable to confirm the lease transfer conditions and security deposit transfer procedures before closing.

The third is tenant protection regulations. Riverside is part of Riverside County, where the cap for increases under the Tenant Protection Act is set at 8.1% as of 2026. This is calculated by adding the consumer price index to 5% and capping it at a maximum of 10%, and tenants who have lived there for over a year cannot be evicted without just cause. There are no separate local rent control ordinances, so the state guidelines apply.

The fourth is holding costs. Property taxes, based on Prop 13, generally have an effective tax rate between 1.1% and 1.25%. Landlord insurance, which includes rental loss and liability coverage, tends to be more expensive than standard homeowners insurance. If you hire a management company, expect to pay 8% to 12% of the monthly rent, and it's common to set aside about 1% of the asset value annually for maintenance. All these items need to be added together to determine the actual cap rate.

If you plan to hire a management company, consider the 8% to 12% fee on the monthly rent. Landlord insurance, which includes rental loss and tenant liability coverage, is priced higher than standard homeowners insurance. Riverside has many new communities, so properties with HOA fees are also common; if you don't include the monthly HOA costs in your net operating income calculations, you might mistakenly think the actual cap rate is higher.

California requires sellers to submit a Transfer Disclosure Statement and a Natural Hazard Disclosure. Areas near Riverside are designated as wildfire risk zones, so be sure to check the risk rating before signing a contract. If in a risk zone, additional endorsements may be necessary beyond landlord insurance. When selling later, you can utilize a 1031 exchange, but be aware of the deadlines: you must identify a replacement asset within 45 days of the sale and complete the purchase within 180 days (IRS).

By going through these four points in order, it appears that Riverside's rental levels are still favorable for cash flow compared to purchase prices. Of course, this can vary based on the condition of individual properties and neighborhoods. When selling later, considering a 1031 exchange to defer capital gains tax is also worth exploring. This article is not investment or legal advice, and it's recommended to consult with a professional before finalizing any contracts.