When planning for retirement, many consultations involve comparing two options for supplementing living expenses with rental income. One option is to rent out a condo in Columbus as is, and the other is to use that money to purchase a nearby single-family home. If the budget is the same, it's important to first examine how the two options differ in terms of return calculations.

The median home price in Columbus is around $250,000, and the average rent is $1,487 per month (Zillow Rental Manager). Dividing the annual rental income of $17,844 by the purchase price yields a total return of 7.1 percent. The effective property tax rate in Franklin County is 1.55 percent (propertytaxrates.org), which translates to an annual property tax of about $3,875 based on a $250,000 property.

After adding property taxes, insurance, maintenance costs, and vacancy losses, estimating the net operating income using the 50 percent rule gives an annual figure of $8,922, resulting in a cap rate of around 3.6 percent. The difference between the total return of 7.1 percent and the cap rate of 3.6 percent is a common gap seen in areas like Columbus, where both purchase prices and rental levels are moderate.

When placing the two options side by side, the differences become more pronounced. Renting out an already owned condo incurs no closing costs associated with a new purchase, making cash-on-cash calculations straightforward; however, if there are HOA fees, the net operating income decreases accordingly. Conversely, purchasing a new single-family home does not involve HOA fees but requires initial cash for the down payment and closing costs. The cash-on-cash return is calculated based on the pre-tax cash flow relative to this initial cash, so which option is more favorable depends on the actual amount of investment cash available.

When reconsidering the two options based on the goal of retirement funds, it is clear that renting out the condo as is allows for stable cash flow without additional loans. On the other hand, if a new single-family home is purchased, despite the initial cash outlay, selecting a property with a higher cap rate could lead to better long-term returns. Neither option is definitively correct, and the balance shifts depending on the amount of cash on hand and the time remaining until retirement.

The property tax rate of 1.55 percent in Franklin County is considered average within Ohio, but as one moves into areas with better school districts, the proportion of school taxes tends to increase, leading to higher effective tax rates. In suburban areas outside of downtown Columbus, while the purchase prices may be lower, property tax rates can be higher, so predicting cap rates based solely on purchase prices may lead to discrepancies in actual calculations. When comparing two properties, it is necessary to check the actual property tax bills for each area. To summarize, it is essential to weigh not only the purchase price and rent but also the property tax rates by area as a starting point for accurate comparisons. Columbus has been recognized as a region with steady population growth in recent years, so the likelihood of a sharp decline in rental demand is relatively low, but this cannot be predicted with certainty. Regardless of which option is chosen, it is safer to make decisions based on verified numbers rather than relying on intuition.

Here are the items to check when comparing:

• Calculate and compare the total return and cap rate for each property in the same manner.
• Check the differences in cost structures for each property, such as the presence of HOA fees and closing costs.
• Ultimately compare cash flow after retirement based on cash-on-cash returns relative to actual investment cash.

In Columbus, property taxes and rental levels can vary by school district and area, so it is advisable to verify the latest data for actual properties. Retirement fund planning should consider not only cash flow but also capital gains and asset appreciation. This article does not constitute investment or legal advice, and it is prudent to consult with real estate professionals and financial advisors before making any decisions.