Let's follow a family that moved from another state to Madison, reviewing two rental properties within a budget of around $450,000. One is a condo close to downtown, and the other is a single-family home a bit farther away. Both properties had similar rental prices, but the deciding factor was the calculation of how much was left after the purchase price.

First, we calculated the total yield. This is done by dividing the annual rental income by the purchase price. According to RentCafe, the average rent in Madison is $1,847 per month, and Redfin reported the median home price over the last three months at $445,000. Dividing the annual rental income of $22,164 by the purchase price gives a total yield of 4.98%.

Next, we calculated the cap rate, factoring in property taxes and operating expenses. The effective property tax rate in Dane County is 1.71%, which is higher than the Wisconsin average of 1.43%. In downtown Madison, the school district taxes can make this even higher, so it was necessary to verify the rates for each property address. Applying the 50% rule for operating expenses, the net operating income was $11,082 annually, resulting in a cap rate of 2.49% when divided by the purchase price.

Then we calculated the cash-on-cash return using the actual loan conditions. With a 20% down payment and 3% closing costs, the actual investment was $102,350. If we take out a loan of $356,000 at a fixed interest rate of 6.67% for 30 years based on Freddie Mac's standards as of August 2026, the principal and interest would be $2,290 per month, totaling $27,484 annually. Subtracting this from the net operating income resulted in an annual loss of $16,402, bringing the cash-on-cash return down to -16%.

The rent multiplier, calculated by dividing the purchase price by the annual rent, was 20.1 times. According to the 1% rule, which suggests that if the monthly rent is more than 1% of the purchase price, the cash flow is likely to be positive, this property's rent was only 0.42% of the purchase price. Neither property met this criterion, but the downtown condo, while having higher management costs, was likely to have shorter vacancy periods, whereas the single-family home had maintenance costs as a variable. Ultimately, the family decided to focus on long-term residency and asset appreciation rather than immediate cash flow.

Madison is considered a stable area for rental demand due to the presence of the state government and the university. Families moving from other states should verify the exact tax rates before purchasing, as they may differ from their previous state. Properties near school districts that Korean families are interested in tend to sell quickly, but school district boundaries change frequently, so it's advisable to check the assigned school for the specific address before buying. Total returns should be assessed not only from monthly cash flow but also from capital gains and asset accumulation through loan principal repayment.

Madison's rental demand is relatively less affected by economic fluctuations due to the employment structure supported by state agencies and the University of Wisconsin. Demand tends to peak at the beginning and end of the semester, leading to shorter vacancy periods, and areas slightly away from downtown continue to see new supply, resulting in moderate rent increases. When comparing the two properties, it was equally important to consider this demand structure as it was to perform the calculations. Ultimately, rather than determining which property was the right choice between the condo and the single-family home, it was more logical to first clarify the vacancy risks and management burdens each could handle.

The sequence the family followed in comparing the properties was as follows:

• First, they compared the rental prices of both properties based on total yield.
• Next, they compared again using the cap rate that factored in property taxes and operating expenses.
• Finally, they checked the cash-on-cash return with the loan conditions before making a decision.

Property tax rates and loan interest rates can vary by property and time, so please consider the numbers in this article as examples. Before making an actual purchase, it is advisable to verify the latest information through the county assessor's office and lending institutions. This article does not constitute investment or legal advice, and it is recommended to consult with professionals before entering into any contracts.