Let's follow the case of a family that moved from another state. Starting with a budget of $400,000, this family planned to buy a 3-bedroom house in Victorville to rent out, but their initial calculations assumed that the entire rental income would remain as profit. They viewed total income and net income as the same.

According to RentCafe data, the average rent for apartments in Victorville is $1,686, which is a 0.48 percent increase from a year ago. By bedroom size, a 1-bedroom averages $1,485, a 2-bedroom is $1,695, and a 3-bedroom is around $2,520. For the 3-bedroom single-family home this family planned, $2,520 is the more relevant figure. Redfin data indicates that the median sale price in Victorville over the last three months is $430,981, which is a 1.1 percent increase from a year ago.

According to Steadily data, rents in Victorville have increased by about 5 percent over the past year. A 1-bedroom, approximately 670 square feet, rents for $1,485, while a 2-bedroom, at 913 square feet, rents for $1,695, which is still relatively low compared to other Southern California cities.

Property tax is based on California Prop 13, which is 1 percent of the purchase price, and when local bonds and special assessments from San Bernardino County are added, the actual burden often rises to between 1.1 and 1.3 percent. Although the absolute amount is smaller in lower-priced areas compared to other cities, the burden can be similar in percentage terms.

Revisiting this family's calculations, applying a purchase price of $430,000 and a rent of $2,520 results in an annual total rent of $30,240, yielding a total return of 7 percent. Initially, they considered this figure as net income, but it was pointed out that they need to recalculate it as net operating income after deducting property taxes, insurance, maintenance costs, and vacancy losses.

According to the 1 percent rule, 1 percent of the purchase price of $430,000 is $4,300, and while the rent of $2,520 does not meet this standard, the total return itself is significantly higher at 7 percent compared to other cities. In areas with lower purchase prices, the gap between total return and the 1 percent rule tends to narrow.

If we assume operating expenses are half of the total rent according to the 50 percent rule, the net operating income would be around $15,120 annually, and the cap rate would drop to 3.5 percent. The real estate investment analysis site RentalRanked estimates the cap rate for the Victorville area to be about 4 percent, which is not far off from the figures recalculated by this family.

Continuing to calculate cash-on-cash return using financing, if we assume a down payment of 20 percent, or $86,000, the monthly mortgage principal and interest deducted from net operating income gives a pre-tax cash flow divided by this $86,000. Because the purchase price is low, the loan burden is relatively small, making it common for cash-on-cash returns to exceed cap rates in such areas.

However, a lower purchase price does not always mean an advantage. If repair costs or vacancy periods increase even slightly, they can significantly impact overall return, so it is safer to keep a generous reserve. This family ultimately decided to purchase by referencing both their calculated cap rate and the average of 4 percent reported by RentalRanked, cross-checking multiple sources rather than relying on a single indicator.

From a total income perspective, the recent 1.1 percent increase in market value and asset growth due to loan principal repayment can also be considered. However, in lower-priced areas, variables like repair costs or vacancy management can have a relatively larger impact on returns, so risks should also be assessed. If a Korean family is interested in school district areas, they should refer to GreatSchools ratings.

This article is not investment or legal advice, and it is recommended to consult with a professional before making any actual contracts.