Recently, I've been frequently asked how to use the rental yield calculator. The input fields are straightforward, but people often get confused about what values to enter and how to interpret the results. Using Tucson properties as an example, I will go through the items that need to be entered into the calculator one by one.

The first values to input are the purchase price and the expected rent. According to Zillow, as of June 30, 2026, the average home value in Tucson is $325,520. At the same time, the average rent for all property types in Tucson is reported to be $1,500 per month. When these two numbers are entered into the calculator, the first result that appears is the total yield. Dividing the annual rental income of $18,000 by the purchase price yields approximately 5.53%.

So, should the calculator just show this one number and be done? No, it shouldn't. The total yield does not account for operating expenses such as property taxes, insurance, and management fees, so there is a significant difference from the actual net profit. Therefore, most calculators require the cap rate to be included as well.

To calculate the cap rate, you need the annual net operating income. The net operating income is the total rental income minus property taxes, insurance, maintenance costs, vacancy losses, etc., excluding mortgage principal and interest. The average effective property tax rate in Arizona is known to be around 0.51%, but since tax rates can vary by county, it is more accurate to check the actual bill for Pima County, where Tucson is located.

If we assume operating expenses to be about half of the rental income based on the 50% rule, the net operating income would be around $9,000 annually, and the cap rate would drop to about 2.7%. When you input this number into the calculator, the gap between the total yield of 5.53% and the cap rate of 2.7% becomes apparent. This gap represents the difference between accounting for costs and not accounting for them.

If you also input the loan conditions into the calculator, you can check the cash-on-cash return. This metric assesses the pre-tax cash flow relative to the actual cash invested, including down payment and closing costs, and can yield results higher or lower than the cap rate depending on how much leverage is used. Instead of making judgments based solely on the calculator results, it can be helpful to compare different loan ratios.

The 1% rule is also worth considering. Industry experience suggests that if the monthly rent is more than 1% of the purchase price, the cash flow is likely to be healthy. In Tucson's case, substituting a monthly rent of $1,500 and a purchase price of $325,520 gives a ratio of about 0.46%, which falls short of the 1% benchmark. However, this should be viewed as a rough reference rather than an absolute standard.

According to Apartment List data, Tucson rents have shown a decline of 1.8% over the past year. During periods when rents are stagnant or declining, it may be safer to conservatively input a generous vacancy loss into the calculator. If the investment is not solely for rental purposes but also for personal residence, it is advisable to check whether the area is in a school district preferred by Korean families. While indicators like GreatSchools can provide school ratings, it is better to verify the assigned school for the specific address before making a purchase, as boundaries can change frequently.

Although it may not be immediately visible on the calculator screen, an important concept not to overlook is total return. Total return includes not only cash flow from rent but also capital gains, asset increases from loan principal repayment, and tax benefits such as depreciation. In markets like Tucson, where purchase prices are relatively low, cash flow metrics like cap rate or cash-on-cash return may stand out, but in the long run, the proportion of capital gains and loan principal repayment in total returns cannot be ignored. However, it is essential to approach investment-related information with caution and not take price predictions as definitive, but rather to continuously re-evaluate calculator results in line with the changing market conditions each year.

Ultimately, the calculator merely computes the numbers; how to input values and interpret them is up to the user. To get a clearer picture, one should check total yield, cap rate, and cash-on-cash return together, while also considering capital gains and asset increases from loan principal repayment. This article does not constitute investment or legal advice, and it is recommended to verify the specific conditions of individual properties with a professional before making any contracts.