Recent market trends show that in Billings, both purchase prices and rents are on the rise. It is common to refer to the money left over after deducting loan principal and interest from rental income as the yield, but this is a calculation closer to cash-on-cash return and is a different concept from net yield.

According to RentCafe, the average rent in Billings as of August 2026 is $1,498 per month, while Zumper reports a slightly lower figure of $1,276. During the same period, the Zillow Home Value Index is approximately $398,212. Dividing the annual rental income of $17,976 based on RentCafe by the purchase price gives a total yield of about 4.5 percent.

To calculate net operating income, operating expenses must be deducted. Starting in 2025, Montana will apply a tiered property tax rate for residential real estate, with a rate of 0.76 percent for properties valued at $400,000 or less. Since the value of homes in Billings falls within this range, the annual property tax is about $3,026. If we assume that total operating expenses are roughly half of rental income based on the 50 percent rule, the net operating income would be $8,988 per year, resulting in a cap rate of around 2.3 percent. The difference between the total yield of 4.5 percent and the cap rate of 2.3 percent is due to operating expenses.

Cash-on-cash return is calculated differently from these two. If a loan is taken out and only part of the purchase price is paid in cash, the mortgage principal repayment is deducted from cash flow, but the cash invested is also reduced. Therefore, depending on the leverage ratio, cash-on-cash return can sometimes be higher or lower than the cap rate. Mixing these three metrics can lead to inaccurate property comparisons.

According to the 1 percent rule, a rent of $3,982 per month should be expected, but actual rents are significantly lower than this. Total returns must consider not only monthly cash flow but also the appreciation in property value and the accumulation of assets from loan principal repayment.

Billings has seen a rental fluctuation of only 0.1 percent over the past year according to RentCafe, maintaining a nearly stable state. The energy industry and healthcare-related jobs in eastern Montana support rental demand, so the market does not experience prolonged vacancies, but the pace of rent increases has recently slowed.

If moving from another state to Montana, it is advisable to first check the new tiered property tax structure that will take effect in 2025. For high-value homes exceeding $400,000, the tax rate increases, so properties near this threshold will require two calculations for property tax. Insurance premiums may also be higher than expected due to a history of hail and wind damage in the area, so obtaining a preliminary estimate is necessary.

Looking at the trend in purchase prices, Zillow indicates that the value of homes in Billings has increased by 1.9 percent over the past year. While rent increases have nearly stalled, purchase prices continue to rise gradually, so although the cap rate may seem disappointing, the appreciation in property value somewhat compensates from a total return perspective. Additionally, when considering the assets accumulated from loan principal repayment, the actual total return may be higher than the cap rate of 2.3 percent. However, due to the area's high dependence on the energy industry, rental demand may fluctuate based on the industrial economy, which remains a variable factor. For example, if we assume a 20 percent down payment, the actual cash invested would be about $79,642, which is 20 percent of the purchase price of $398,212. Dividing the pre-tax cash flow, after deducting loan principal repayment, by this cash investment yields the cash-on-cash return, which often trends lower than the cap rate as interest rates rise. It is important to note that leverage does not always work favorably in high-interest rate environments like the current one.

Property tax rates and insurance premiums can vary based on the county and the condition of the property, so it is advisable to verify based on the actual address. This article does not constitute investment or legal advice, and it is recommended to consult with a real estate professional and accountant before making any actual contracts.