You took on the risk and invested for a reason: a return.

But how much should you expect back?

Here’s what’s considered a good rate of return on a rental property:

The Short Answer (and Why it “Depends)

A “good” return on a rental property exceeds your cost of capital (your hurdle rate reflecting loan costs, the return you require on your cash, and a risk/effort premium). It should outperform local comps on the same metric, whether that’s cap rate, rental yield, or cash-on-cash.

Because returns vary by location, property type, and expected vacancy, aim to be above your local average after adjusting for those factors.

Okay, The Long Answer

Building on our short answer, here’s the long and (fair warning) more number-heavy answer:

Across U.S. counties, the average gross rental yield for three-bedroom properties is approximately 7.45% for 2025, with top-yield counties achieving yields of roughly 10% to 18%.

Institutional benchmarks add more insight. Core multifamily going-in cap rates (day-one net operating income (NOI) divided by purchase price) are around 4.73% in Q3 2025.

On the equity side, many investors view 6% to 10% cash-on-cash return as an attractive range for residential deals, adjusted for risk and effort.

How to Calculate Your Return (Step-By-Step)

Okay, so how exactly do you calculate your return? Grab your notepad, here’s how:

1. Start With Your Income

Begin with the monthly rent you do or will earn from the property, multiply by 12 to get gross rent. Subtract a vacancy allowance and any expected credit loss to get the effective gross income. Add other income such as pet fees, parking, or laundry.

Example: $2,500 per month × 12 = $30,000 gross rent. With a 5% vacancy allowance, the effective gross income is $28,500. Assume no other income for simplicity.

Learn more: What is a rental ledger?

2. Now, the Expenses

List annual operating expenses you will pay: property taxes, insurance, repairs and maintenance, utilities that are owner-paid, management fees, HOA dues, and a small reserve for capital items such as roof, HVAC, or appliances. You can itemize or apply a conservative expense ratio if you have a limited history.

Example: Using a 35% expense ratio on $28,500 gives $9,975 in operating expenses.

3. Get NOI, Then Capitalization Rate

NOI, or net operating income, equals effective gross income minus operating expenses. Cap rate equals NOI divided by purchase price or current market value.

Example: $28,500 − $9,975 = NOI $18,525. If the purchase price is $240,000, the cap rate ≈ 7.7%.

4. Layer in Financing to get Cash-on-Cash Return

Subtract annual debt service from NOI to get pre-tax cash flow. Divide that by your total cash invested to get the cash-on-cash return. Total cash invested usually includes the down payment, closing costs, and initial repairs.

Example: 20% down on $240,000 is $48,000. Loan is $192,000 at, let’s say, 6.5% for 30 years, which is about $1,213.57 per month, $14,562.85 per year. Pre-tax cash flow ≈ $18,525 − $14,562.85 = $3,962.

That means your cash-on-cash return ≈ $3,962 ÷ $48,000 = ~8.3%.

Confused? Here’s how to calculate your rental rate in more detail.

Your Rate of Return Against the Local Market

If we go back and look at the average gross rental yield across the US, 8.3% is above the average of 7.45%, so our example delivers an above-average rate of return.

But just remember, despite averages, your local comparables (properties similar to yours) matter most. If a neighbor’s rate of return is, say, 12% and yours is only 8.3%, you’ll need to ask yourself why that is.

Let’s look at this in more detail:

Compare to Local Yields and Cap Rates

Select three to five recent comparable properties that are similar in terms of property type, number of bedrooms and bathrooms, condition, and location. For each, estimate the vacancy rate and typical expenses, then calculate a quick net yield or capitalization rate.

Your deal looks “good” when it lands above that local band on the same measure without leaning on rosy assumptions. If the property is unusual, widen the radius a little and normalize for size and condition.

Keep It Micro-Local

Do not average an entire city. Anchor your comparables inside the same school catchment, on the same side of any major arterial, and with similar walkability and transit access. A unit one block deeper into a top-rated school zone, closer to a rail stop, or shielded from freeway noise can justify stronger rent and faster leasing than one located just a few streets away.

If you cannot find three to five true peers, widen the radius a little, then note each difference in a short line item, such as “outside school zone” or “faces arterial”, and temper your effective rent or expected vacancy accordingly.

Vacancy and Seasonality Check

Sanity-check your vacancy before you celebrate a “good” result. If your pro forma uses a tighter vacancy rate than the comparables, back it up with evidence such as recent days-on-market, the time of year you will list, or a clear presentation edge like better photos and in-unit laundry.

If you cannot justify the difference, lift your vacancy assumption to the comparable average and recompute yield, cap rate, and cash-on-cash.

Seasonality matters as well. Listings that come on the rental market during peak leasing months often turn over faster than winter listings in the same block. If a small increase knocks your metric back into the local middle of the pack, your return is not “good” yet.

Expenses Investors Underestimate (And Shouldn’t)

Unseen expenses hurt your returns. Keep an eye out for these commonly unaccounted-for costs:

Turnover Costs and Vacancy

Between tenants, getting the place ready usually means a deep clean, touching up or repainting walls, fixing small items, tidying or replacing worn carpet or vinyl plank flooring, and checking locks and door hardware. If you use an agent or manager, include any leasing or placement fees.

Empty days also cost money: estimate the cost per day by dividing the monthly rent by 30, then multiplying by the number of extra days the home sits empty (for example, at $2,400 per month, each empty day is about $80, so a 6-day delay costs roughly $480).

Keep the work list short enough to finish in a few days to about a week, and if it will take longer, add the extra empty day cost to your return calculation before you approve the work.

Property Taxes and Insurance Drift

Buying can trigger a property tax reassessment, and your insurance premium can change after a claim, as the roof ages, or if regional risk shifts (storms, fires).

What to do:

1. Check tax history. Look up the parcel on the assessor’s site. See how taxes changed after prior sales on this property and nearby. Estimate what your taxes would be at your purchase price, not the seller’s older assessed value.
2. Get specific insurance quotes. Provide roof age, construction type, square footage, and coverage needs (replacement cost, liability, wind/hail, flood if required). Ask for an estimate of the next renewal increase, too.
   Budget a “drift” buffer. Add a small annual line item for increases so a mid-year escrow adjustment does not wreck cash flow.

Simple example:

• Current taxes: $3,000. Model $3,600 in Year 1 after reassessment, then +3–5% per year.
  Current premium: $1,800. Model $2,000–$2,200 at renewal if the roof is older or you are in a higher-risk area.

Revisit both lines every renewal and update your pro forma so your return stays realistic.

Not sure what your property tax rate is? Ranked low to high, here’s the property state rate for each US state.

Depreciation, Taxes, and Your After-Tax Return

Residential structures are typically depreciated over 27.5 years; land is not depreciable. Depreciation can lift your after-tax cash yield today because it reduces taxable income reported on Schedule E.

At sale, some or all of that benefit may be recaptured, and you may also face capital gains on appreciation. Investors sometimes use a 1031 exchange to defer recognition when swapping into another property, so be aware of this.

What Moves Returns Most (Levers You Control)

Three levers move almost every rental’s return. First, price and presentation raise what the market will pay. Second, vacancy control shortens the time between leases, so more of the year is earning rent. Third, expense discipline keeps operating costs from eating cash flow.

Think in days and dollars. One extra vacant week can erase a meaningful slice of annual rent, so a small, realistic price adjustment that fills the unit faster often beats holding out.

Let’s explore this more:

Pricing and Marketing Reduce Vacancy

Price to the market you have, not the one you wish you had. Use clean, bright photos and a tight feature list that leads with must-haves like in-unit laundry or parking. Publish at a realistic asking rent based on fresh comparables, then review inquiries and showing volume within the first 72 hours.

If interest is lackluster, adjust early instead of drifting vacant. Offer flexible viewing windows or self-tours so prospects can see the place quickly. Keep screening criteria consistent and start renewal conversations 60 to 90 days before expiry with fair increases and a small tune-up offer, which is cheaper than a turn and a gap. Track four simple ratios, each listing cycle to keep yourself honest: days on market, inquiry-to-showing, showing-to-application, and application-to-lease.

Renovations that Lift Rent Without Overcapitalizing

Refresh before you reinvent. Focus on updates that renters pay for and that survive turnovers: neutral paint, resilient flooring in high-wear areas, a kitchen and bath refresh, bright task lighting, smart access, and storage adds.

Run a quick payback check for each item and aim for a vacancy-neutral scope that fits a standard turn window. Pre-order materials, batch trades, and schedule the final clean and photos before you start, so the unit goes live the moment work wraps. If the math looks thin or the work would extend vacancy, scale the scope or defer it to the next natural turnover.

Expense Discipline

Protect NOI with boring, repeatable habits. Set a preventative maintenance calendar that includes filter changes, recaulking wet areas, gutter cleans, and an annual HVAC tune-up to prevent bigger failures. Standardize paints, flooring, and hardware across units so touch-ups and repairs are faster and cheaper.

For larger jobs, collect at least two comparable vendor bids and document the scope so you are not paying for extras you did not approve. Trim utility spend with whole-home LED lamps and simple comfort upgrades, and consider a smart thermostat where the system supports it. Review insurance annually, shop coverage if premiums jump, and keep a small capital reserve so inevitable replacements do not crush cash flow mid-year.

Your Rate of Return is Looking Great, Now What?

The easiest way to protect a “good” return is to shorten vacancy, present the unit like a true professional, and keep operating costs predictable…

And that’s precisely what Ziprent’s flat-fee services are built for.

Our tenant placement includes next-day listing with professional photography, 3D tours, on-demand showings, instant screening, and automated lease generation, so more prospects see your unit and good tenants sign sooner.

While our property management offers 24/7 support covering rent coordination, accounting, maintenance requests, and coordination, plus inspections and renewals.

Sounds great, right? Simply head over to our homepage, and let’s get you signed up.

For US-based homeowners and real estate investors, the old saying, “There are only two things certain in life: death and taxes,” is painfully accurate. Property taxes are no exception.

Buy in the wrong location and they’ll make short work of the American dream.

So, before you sign on the dotted line, let’s uncover which states are the most (and least) tax-friendly for rental property investors like yourself.

What are Property Taxes?

Property taxes are recurring fees that homeowners and real estate investors pay to their local governments. They’re basically a “membership fee” for your community, used to fund essential services like schools, police and fire departments, road maintenance, and other local infrastructure.

Before we move on, a quick note on semantics: The terms “property tax” and “real estate tax” are used interchangeably. However, technically, there is a difference:

• Property tax is an umbrella term encompassing all taxes levied on property, both real and personal. Real property is immovable (land, buildings), while personal property is movable (cars, furniture).
• Real estate tax specifically refers to taxes levied on real property, such as houses, apartments, commercial buildings, and land.

For the average homeowner or investor, the terms are essentially synonymous, and we’ll be using them in this way from here on out.

States With Lowest Property Taxes

If low property taxes are a priority for your next rental investment, look no further than these five states:

1. Hawaii boasts the nation’s lowest rate at a mere 0.27%. Surprised? Hawaii gets a big chunk of its budget from income and sales taxes, relieving the burden on the property tax side of things.
2. Alabama has the second-lowest at 0.39%. The state’s homes, farmland, and timberland are protected under the state’s constitution, making property taxes hard to raise.
3. Colorado keeps its 0.49% rates low thanks to the Taxpayer Bill of Rights (TABOR). This law caps how much the government can collect, making it investor-friendly even with the booming real estate market.
4. Nevada is a new contender in the top five with a tax rate of 0.50%. Nevada’s appealing tax climate now includes one of the lowest property tax rates, adding another reason to consider the Silver State for your real estate ventures.
5. Louisiana slips down one place with a 0.55% tax rate, but it’s still a low-tax leader. The state offers property tax exemptions, like the homestead exemption, which helps keep the effective tax rate down for many property owners.

To put these numbers in perspective, the national average property tax rate is a hefty 0.99%, nearly FOUR TIMES higher than Hawaii’s rate.

Learn more: 15 best places to buy rental properties.

States With Highest Property Taxes

If dodging high property taxes is your goal, you might want to think twice about these five states. Let’s take a closer look at the tax revenue heavy hitters:

1. New Jersey holds onto a top spot at 2.23%, though their rate has seen a bit of a dip. The State’s high property taxes continue to be driven by factors like dense population, relatively high real estate values, and those well-funded public services, especially their school system.
2. Illinois homeowners will also see a decrease in their tax rate, sitting at 2.08%. The reliance on property taxes to fund essential services like education keeps them near the top of the list.
3. New Hampshire’s rate has also fallen slightly to 1.93%, although property owners still shoulder a heavy tax burden. This is largely due to the state’s lack of income and sales taxes, meaning property taxes are a primary funding source for local services.
4. Connecticut, known for its affluent areas and strong public services, continues to have one of the highest property tax rates in the nation at 1.79%, although it has decreased from the previous year.
5. Vermont rounds out the top five with a rate of 1.76%. The state’s commitment to well-funded public services, particularly its focus on equitable education across districts, contributes to its relatively high property tax rate, which has also seen a slight reduction.

Remember, the national average is around 0.99%. That’s less than HALF of what New Jersey residents are paying.

Do All States Have Property Taxes?

The short answer is yes, every state levies some form of property tax. However, savvy investors need to be aware of nuances and exceptions.

Tax rates vary drastically from state to state. As we’ve seen, a property in Hawaii is taxed at a tiny fraction of the rate compared to a property in New Jersey. But even within a high-tax state, certain areas might have lower tax rates on other commodities or specific exemptions that will significantly reduce the burden.

So, a word of warning. Don’t take things at face value. While places like Hawaii and Colorado might sound tempting, states often compensate for low property taxes and missed revenue with higher property and sales taxes. Those costs add up fast, especially for landlords who aren’t just investing in property in a specific state but are living there, too.

That’s why smart investors look beyond the flashy headlines and analyze the total tax burden.

Learn more: Out-of-state real estate investing for newbies.

Property Tax Cuts and Relief Programs

Eligibility criteria for tax reliefs vary by state. Certain states also offer tax breaks for properties used for specific purposes, like agriculture or conservation.

While we won’t break down every single program here, as there are too many to list and they are frequently updated, here are a few examples of the types of relief you might find:

• Tax credits can be applied directly, often targeting specific situations like installing energy-efficient upgrades or owning historic properties.
• Tax deferrals allow you to delay paying a portion of your taxes. While not technically a “cut,” it can be a lifesaver if cash flow is tight.
• Rental property programs are offered by some states or municipalities through specific programs for rental properties. These might include tax credits for providing affordable housing or deductions for certain expenses.

Property Tax Exemptions

And tax exemptions, what about those? Let’s take a look at some of the most common:

• Homestead exemptions lower the taxable value of a property, which means you’ll pay less in taxes. The specifics vary by state, but typically, it’s a fixed amount or a percentage reduction based on the property’s value.
• Senior and veteran exemptions offer additional tax breaks for seniors or veterans. These can be quite substantial, so it’s definitely worth looking into if you qualify.
• Disability and limited income exemptions are also available in some states. Under such exemptions, eligible individuals can qualify for property tax reductions.
• Agricultural exemptions allow land that is used for commercial purposes to qualify for lower tax rates, as these properties often have different valuations than residential homes.

Applying for tax cuts, relief programs, and exemptions usually involves filing paperwork with your local assessor’s office. The specific process can vary, so check your state’s website for guidance.

Property Taxes Ranked by State

Curious as to what the property taxes are outside the five least expensive and five most expensive that we covered earlier? Done. See all 51 states and districts below:

Rank	State	Median Effective Property Tax Rate
1	Hawaii	0.27
2	Alabama	0.39
3	Colorado	0.49
4	Nevada	0.50
5	Louisiana	0.55
6	South Carolina	0.56
7	District of Columbia	0.57
8	Delaware	0.57
9	West Virginia	0.58
10	Wyoming	0.58
11	Arkansas	0.61
12	Utah	0.63
13	Mississippi	0.65
14	New Mexico	0.65
15	Tennessee	0.66
16	Idaho	0.69
17	Arizona	0.72
18	Missouri	0.73
19	Montana	0.74
20	California	0.76
21	Indiana	0.76
22	Kentucky	0.78
23	Florida	0.83
24	North Carolina	0.84
25	Virginia	0.85
26	Maryland	0.87
27	Oregon	0.90
28	Washington	0.93
29	Georgia	0.94
30	Maine	0.94
31	Oklahoma	0.97
32	South Dakota	0.99
33	Alaska	1.02
34	North Dakota	1.05
35	Minnesota	1.08
36	Pennsylvania	1.09
37	Texas	1.10
38	Kansas	1.14
39	New York	1.26
40	Michigan	1.31
41	Nebraska	1.36
42	Wisconsin	1.53
43	Ohio	1.56
44	Iowa	1.57
45	Massachusetts	1.63
46	Rhode Island	1.63
47	Vermont	1.76
48	Connecticut	1.79
49	New Hampshire	1.93
50	Illinois	2.08
51	New Jersey	2.23

Data source: US Census Bureau, B25103 dataset.

Counties With Highest Tax Rates

Some counties really know how to take a big bite out of your budget! If you’re looking for a deal, you might want to steer clear of these notorious high-tax counties:

• Menominee County, Wisconsin, tops the charts with a whopping 3.64% effective property tax rate. That means for every $100,000 of your home’s value, you’re shelling out over $3,600 in property taxes each year. Ouch!
• Camden County, New Jersey. Don’t let the Garden State fool you; some areas come with a hefty tax burden. Camden County residents face an effective rate of 3.08%.
• Salem County, New Jersey, appears again, with Salem County close behind at a 3.03% effective tax rate.
• Orleans County, New York. Upstate New York also makes an appearance. Orleans County residents pay an effective property tax rate of about 3.00%.
• Allegany County, New York. Staying in New York, Allegany County shows an effective rate of 2.94%.

And the list goes on! Several other counties in New Jersey and New York also rank among the highest, along with Lake County in Illinois.

Below, you’ll find which ten counties pay the most in property taxes:

Rank	County	State	Median home value (USD)	Median Property Taxes Paid (USD)	Effective Property Tax Rate
1	Menominee County	Wisconsin	97,000	3,527	3.64%
2	Camden County	New Jersey	262,200	8,063	3.08%
3	Salem County	New Jersey	223,000	6,757	3.03%
4	Orleans County	New York	126,200	3,781	3.00%
5	Allegany County	New York	97,900	2,881	2.94%
6	Gloucester County	New Jersey	283,500	7,964	2.81%
7	Monroe County	New York	197,100	5,495	2.79%
8	Cattaraugus County	New York	109,400	2,946	2.69%
9	Lake County	Illinois	326,600	8,743	2.68%
10	Cortland County	New York	158,100	4,184	2.65%

Data source: US Census Bureau, B25103 dataset.

Why Do Property Taxes Vary From State to State?

State property tax rates vary depending on several factors:

• State, county, and city tax authorities decide how much money they need to run things, from schools to garbage collection. Property taxes are a major source of that funding, so if those budgets are high, taxes often are, too.
• Some states provide more funding for local services than others, which means less reliance on property taxes. Others leave it largely up to local governments, resulting in greater variation across regions.
• Each state has its own mix of tax sources—income tax, sales tax, and property tax. A state with a high sales tax might rely less on property taxes to fund its budget.
• A booming economy can mean higher property values, leading to higher assessments and tax bills, even if the rate itself stays the same.

It’s a complex puzzle, but one thing’s for sure: understanding the tax environment of your state—and specific areas within it—is imperative for making smart investment decisions. Don’t just look at the top-line number. Dig into the details to see how taxes impact your bottom line.

How Are Property Values Assessed?

Think property taxes are based on what you paid for your place? Nope—it’s all about assessed value, which is what the government thinks your property is worth right now.

How do they come up with this number? Local assessors are the people behind the curtain. They crunch data annually or every couple of years using a few different methods:

• Sales evaluation is the most common method. They look at what similar properties in your area have sold for recently.
• Cost approach involves estimating the cost of replacing your house from scratch, including materials, labor… the works.
• Income approach is another commonly used method. If your property is a rental, they’ll look at the income it generates to figure out its value.

The assessed value isn’t the final say, though. The government applies a tax rate, which is a percentage that varies by location. This rate is multiplied by the assessed value to calculate your actual property tax bill (you’ll see how this works in the next section).

What are Property Taxes Based On?

Property taxes are based on two factors:

1. The assessed value: the metric we just discussed, the value given to a property by a government assessor.
2. The local mill levy: a tax determined by a local government based on the determined funding requirements of various public services and governmental functions within a specific jurisdiction.

It’s important to note that the assessed value is often a percentage of the property’s market value, not the entire value. This percentage, known as the assessment rate, varies by locality. For example, if a home’s market value is $500,000 and the assessment rate is set at 8 percent, the assessed value would be $40,000.

So, how are property taxes calculated? It’s fairly straightforward. Just multiply the assessed value by the mill rate.

For example, if a property’s assessed value is $40,000 and the mill levy is 4.5 percent, you’d

1. convert the 4.5 percent mill rate into a decimal: 4.5 / 1,000 = 0.0045
2. and then multiply the assessed value of $40,000 by the mill rate of 0.0045 = $1,800.

If you owned the example property, you’d pay $1,800 annual property tax or $150 per month.

The Impact of Property Taxes on Homeowners

Property taxes aren’t just a line item on your bill. Oh, no. They can significantly impact your finances and your real estate decisions. For homeowners, those annual tax payments add up, especially in areas with high rates, making housing less affordable.

For rental investors, property taxes are a make-or-break deal. If the tax rate is sky-high, your rental income gets eaten up before you even see a profit.

Here are a couple of things to consider for landlords:

• High property taxes severely limit your cash flow, making it hard to cover unexpected expenses or reinvest in your property.
• If you have to pass those high taxes onto your renters, it could lead to higher vacancy rates or force you to accept less qualified tenants.

That’s why savvy investors factor in the tax burden when evaluating potential markets. It’s not just about home prices—it’s about the continued cost of ownership.

Learn more: Real estate taxes for landlords with small portfolios.

How to Effectively Manage Your Property Taxes

With a bit of planning and know-how, you can take the sting out of that annual bill and keep more of your hard-earned rental income.

First things first: set aside some cash each month. You’ll thank yourself later when that tax bill arrives. Even a small amount saved regularly can make a big difference.

Next, know your options. Some states let you pay your taxes in installments throughout the year, which can make it more manageable. Check with your local tax office to see what’s available.

Don’t forget about those sweet exemptions and relief programs. As we discussed earlier, there might be ways to lower your property tax bill depending on your situation. It’s worth digging into those options, as they could save you a bundle.

And don’t be afraid to ask for help. A tax professional will guide you through the ins and outs of deductions and credits specific to your state. It might seem like an extra expense, but their expertise could save you way more than it costs (plus, their services are tax-deductible).

Learn more: helpful tax tips for landlords.

Maximize Your Property Value

Understanding the factors that influence tax rates, researching your state’s specifics, and taking advantage of potential exemptions will allow you to take control of your tax burden and protect your investment.

Remember, being a savvy property owner isn’t just about finding the right property; it’s about making smart financial decisions.

Ready to make your property work for you? Explore our range of property management services and take the first step towards a stress-free, profitable future.