Cap rate, real cash flow, and return on the cash you put in — including the expenses most analyses leave out. Estimate only, not investment advice.
Estimates only — not investment, tax, or legal advice. How we calculate every figure
Estimated all-in monthly payment for a home price you have in mind.
What homeowners insurance costs in your state, and whether what you pay is out of line.
Income, savings, and debts in — max home price and qualification signal out.
A rental bought for $300,000 and sold seven years later for $394,780 nets $158,925 at closing — and owes about $24,753 of federal tax, $15,273 of it on depreciation you were required to take. Here is the math, why a sale with zero appreciation still owes tax, and the three clocks a fourth-quarter sale starts.
A leveraged rental makes money three ways and cash flow is only one of them. Here is what the other two are worth — and why the structure that maximises them is a bet, not a plan.
How to verify one specific rental deal: audit the seller's pro-forma line by line, comp a real rent, reassess the tax, age the systems, and price the offer the numbers actually support.
Set up basis correctly, claim the depreciation you are owed, survive the passive-loss rules, and know what the sale will cost — with every figure tied to the statute.
California guide
Every other article in this series has a villain in the expense column. Florida has an $8,471 insurance premium. Colorado has a 2% hail deductible. Texas has the property tax.
California does not. The average homeowners premium is $1,829 a year at $300,000 of dwelling coverage — below the national average, below Arizona's, below Colorado's by a factor of 2.4. The effective property tax rate is 0.70%, which is unremarkable. Total operating expenses on the worked example below come to 41.40% of collected rent, comfortably inside the 35% to 55% band a healthy rental occupies.
The problem is the $904,640 median price, and the fact that rents in California have never been anywhere near 1% of it.
That produces a 2.57% cap rate — identical, to two decimal places, to the figure the Florida version of this article arrives at. Two states get to the same place by opposite routes: Florida through catastrophic carrying costs, California through price. The consequence, though, is not the same, and the difference is the point of this article. A California rental at the median is an appreciation bet, not a cash-flow investment. That is a legitimate thing to buy. It is a different thing to buy, with a different risk profile, and Section 4 puts a number on exactly how large the bet is.
A note before you start: this is general educational information about how rental property arithmetic works in California. It is not investment, tax, insurance, or legal advice, and it is not a recommendation about any property. California property tax turns on Proposition 13 mechanics that reset on sale; insurance availability in this state is changing month to month; and California landlord-tenant law is among the most detailed in the country and is not covered here. Talk to a California CPA about tax treatment, a licensed California insurance agent about a real quote, and a California real estate attorney about anything contractual — in California that last one is not optional advice.
Read the full California guide →22 min read · Updated 2026-08-28