Many people have misunderstood net yield and total yield as the same term for several years. They often calculate yield based only on the money left after paying the mortgage from rental income, only to realize later, when it's time to sell the house, that they have overlooked the accumulated asset appreciation. So, how do net income and total income differ?

Lansing is a city in Michigan that falls into the lower end of the rental spectrum. According to RentCafe, the average rent in 2026 is projected to be $1,220 per month, while Zumper reports it to be somewhat lower at $1,100. At the same time, the Zillow Home Value Index is around $145,586. Based on these two figures, the total yield calculated is approximately 10.1 percent, derived from the annual rental income of $14,640 divided by the purchase price. Since the purchase price is low, the total yield figure appears high.

But is this 10.1 percent the actual profit you receive? Not quite. Here, you need to subtract operating costs such as property taxes, insurance, management fees, and maintenance costs to arrive at the net operating income, which is then divided by the purchase price to determine the cap rate. Applying Michigan's average effective property tax rate of 1.54 percent, the annual property tax comes to about $2,242. If we apply the 50 percent rule and estimate total operating expenses to be about half of the rental income, the net operating income becomes $7,320 annually, and the cap rate drops to around 5.0 percent.

The next common question is how taking out a loan affects the yield. Cash-on-cash return calculates the pre-tax cash flow relative to the actual cash invested, which includes the down payment and closing costs. Since mortgage principal repayment is excluded from cash flow, and the cash invested itself decreases, the higher the loan proportion, the different the number becomes compared to the cap rate. This is where confusion arises between net yield and cash-on-cash return.

Another frequently overlooked aspect is total income. When looking only at the monthly cash flow, markets like Lansing with low purchase prices may appear to have favorable yields, but the actual total income must include the appreciation of property values, the reduction of loan principal that accumulates as assets, and tax benefits such as depreciation. Rather than making definitive judgments based solely on the net yield figure, it is better to consider these factors together.

Lansing is a city supported by the state government and Michigan State University for rental demand. According to RentCafe, the rental growth rate over the past year is 4.7 percent, indicating that while purchase prices are low, rents are steadily increasing. However, the student rental market in East Lansing and the general rental market in downtown Lansing have different characteristics, so the approach may vary depending on which one you target.

In markets with low purchase prices, it is natural to first focus on the total yield figure, but if you are moving from another state, it is advisable to compare the property tax calculation methods with those of your previous area. If you come from a state with low property taxes, Michigan's effective tax rate may feel burdensome, while conversely, if you come from a state with high property taxes, you may feel more at ease. In both cases, recalculating based on net yield can help narrow the gap between perception and actual figures.

Looking at the trend of rising purchase prices, Zillow indicates that Lansing home values have increased by 2.4 percent over the past year. While this is relatively moderate within Michigan, the low purchase price means that even the same rate of increase does not translate to a large absolute amount. However, when considering the reduction of loan principal that accumulates as assets and tax benefits such as depreciation, the actual total income may be somewhat thicker than the cap rate of 5 percent. However, such capital gains and tax benefits can vary based on individual tax situations and market trends, making it difficult to generalize.

Property tax rates and insurance premiums can vary by county, so please verify the actual listings based on the 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 contracts.