There have been inquiries from Cleveland about whether one rental property can cover part of living expenses after retirement. When we go through the items that need to be checked in order, the answers often become clear. In areas with lower purchase prices, initial calculations may seem favorable, but it's important to also consider the results when including property taxes and operating costs.

The average home value in Cleveland is $120,549 (Zillow), which has decreased by 2.3 percent over the past year. The median rent is around $1,150 per month (Zillow). The total return rate, calculated by dividing the annual rental income of $13,800 by the purchase price, is 11.4 percent, which is the highest among the areas examined this time.

Next, we need to check the property tax. Cleveland's effective property tax rate is 2.29 percent, which is higher than Ohio's median of 1.6 percent (Ownwell). For a property valued at $120,549, the property tax alone would be $2,761 annually, which corresponds to 20 percent of the annual rental income. When we add insurance, maintenance costs, and vacancy losses, and estimate the net operating income using the 50 percent rule, it comes to about $6,900 per year, resulting in a cap rate of around 5.7 percent.

In retirement fund planning, there are three key items to check. First, establish the total return rate to get the big picture. Second, confirm actual profitability using the cap rate after deducting operating costs, including property taxes. Third, if using a loan, consider the cash-on-cash return that reflects the principal and interest payments. Properties with lower purchase prices also have a smaller down payment burden, so it may be worth considering a strategy of purchasing multiple properties with the same equity to diversify vacancy risk.

However, the observation that the average home value in Cleveland has decreased by 2.3 percent over the past year cannot be overlooked. A high cap rate does not necessarily mean a good investment, and the possibility of stagnation or decline in future market trends should also be considered, especially if the retirement fund is primarily focused on cash flow. If planning to sell assets, it is safer to examine the market trends in different areas.

To look more closely at the property tax burden, the median property tax payment for Cuyahoga County, where Cleveland is located, is $4,087 annually, significantly higher than the national median of $2,400. However, this figure varies greatly within the county, with differences of thousands of dollars between areas with low and high tax rates. This is why it is essential to check the recent property tax bill based on the exact address of the property before making a purchase. If decisions are made based solely on total return rates, one might mistakenly think they are looking at properties with low tax burdens, making it particularly important to verify the effective tax rate in retirement fund planning. Older homes may incur higher maintenance costs than expected, so carefully reviewing inspection results before purchase can help estimate future repair costs and aid in cash flow planning.

The order of checks can be summarized as follows:

• First, confirm the total return rate based on annual rental income relative to the purchase price.
• Calculate the cap rate using net operating income after deducting property taxes, insurance, maintenance costs, and vacancy losses.
• Check actual cash flow after retirement using the cash-on-cash return that includes loan principal and interest payments.

Cleveland shows significant variations in property tax rates even within the area, so be sure to verify the tax rate based on the exact address of the property. In areas with lower purchase prices, closing costs and initial repair costs make up a relatively larger portion of the total investment, so when calculating cash-on-cash returns, these initial costs should be included in the actual cash investment for an accurate picture. Retirement fund planning should consider not only cash flow but also the market trends of the assets. This article does not constitute investment or legal advice, and it is advisable to consult with real estate professionals and financial advisors before making actual decisions.