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The Highest Price to Rent Ratios in the US Housing Market in 2018

by | 0 comments | Jul 26, 2018 | 5 min read |

Whether you are a landlord or a renter, you definitely care about property prices, rental rates, and the ratio between the two in your market. Here we will show you the real estate markets across the US with the highest price to rent ratios in 2018.

This post was written by our partners at Mashvisor, who are making it easier for investors to find and analyze new real estate investments.

What’s the Price to Rent Ratio?

The price to rent ratio is really a fancy name for a simple real estate concept. It shows the ratio of average property prices to average rents in a specific housing market. Just keep in mind that you should plug in the annual rent, not the monthly one. How is it calculated?

 

Price to Rent Ratio Formula

Price to Rent Ratio = Average Property Price ÷ Average Annual Rent

Let’s take a look at an example:

Price to Rent Ratio Example: The San Antonio Real Estate Market:
According to data from Mashvisor, an advanced real estate data analytics company, in San Antonio in July 2018:

  • Average Property Price: $301,000
  • Average Monthly Rent: $1,530

Price to Rent Ratio in San Antonio = $301,000 ÷ (12 x $1,530) = 16

The price to rent ratio in San Antonio this year is 16, but what does this mean for landlords and renters? On the one hand, from the perspective of a real estate investor, is buying a rental property in San Antonio, TX a smart investment decision? On the other hand, from the point of view of a renter, it is better to rent in San Antonio or to attempt to buy your own home?

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What Does the Price to Rent Ratio Tell Us?

The price to rent ratio reveals whether in a certain real estate market it is better – from a purely financial standpoint – to buy your own home or to rent a property. This number shows how expensive (or not) it is to buy a real estate property compared to renting one. Alternatively, it tells real estate investors how much rental demand they can expect in this market.

Locations which are more expensive to buy rather than to rent will experience a high demand for rental properties, which is excellent news for property investors and a strong signal that they should explore their options for buying an investment property there. Meanwhile, if it is relatively cheaper to buy a home rather than to rent one, the rental demand will be low, which means that real estate investors should generally avoid buying a rental property in this location.

The price to rent ratio is divided into 3 ranges:

  • Below 15:A price to rent ratio of 16 or below is considered low. For homebuyers/renters, this ratio means that in this particular market people are better off buying a property rather than renting one. Investors, on the other hand, can expect low rental demand, so it’s best to stay away from this market.
  • 16-20:A price to rent ratio in this range is relatively high, which means that it is usually better to rent a property rather than to buy a home. Real estate investors can expect decent rental demand, so they should definitely look into buying an investment property in this market. However, they need to conduct careful neighborhood analysis and investment property analysis to make sure that they are investing in a positive cash flow income property in the right neighborhood.
  • Above 21:Finally, a price to rent ratio of 21 and above is high, and it tells renters to continue renting in this housing market as property prices are too high, compared to rental rates, to buy a home. Property investors, alternatively, are guaranteed high rental demand, which also means good rental income and positive cash flow.

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What Are the Highest Rent to Ratio Real Estate Markets in the US in 2018?

Following are the housing markets in the US with the highest price to rent ratios in July 2018. All data comes from Mashvisor.

These markets will tell people living there or soon move to one of them that it is the financially more pragmatic decision to rent a property rather than buy a home there.

They will also tell investors looking for a location for their next rental property to pay special attention to these housing markets and explore the investment opportunities. High rental demand is definitely a great signal for property investors.

US Real Estate Markets with the Highest Price to Rent Ratio in July 2018

City Price to Rent Ratio Average Property Price Average Monthly Rent
1 Napa, CA 46 $1,462,900 $2,680
2 Park City, UT 41 $980,900 $2,010
3 Boulder, CO 45 $1,025,100 $2,460
4 New York, NY 34 $1,144,500 $2,780
5 Seattle, WA 32 $834,600 $2,230
6 Palm Springs, CA 29 $604,000 $1,730
7 San Jose, CA 29 $1,065,400 $3,110
8 San Francisco, CA 28 $1,546,300 $4,520
9 Bend, OR 28 $606,500 $1,810
10 Boston, MA 27 $852,800 $2,640
11 Miami Beach, FL 27 $784,500 $2,400
12 Irvine, CA 27 $1,103,000 $3,440
13 San Diego, CA 26 $823,300 $2,670
14 Phoenix, AZ 26 $432,700 $1,390
15 Austin, TX 24 $525,500 $1,840
16 New Orleans, LA 24 $416,800 $1,440
17 Portland, OR 23 $559,900 $2,060
18 Charlotte, NC 23 $387,200 $1,420
19 Miami, FL 23 $651,500 $2,370
20 Las Vegas, NV 23 $359,200 $1,290
21 Long Beach, CA 23 $827,600 $3,050
22 Nashville, TN 22 $426,800 $1,640
23 Denver, CO 22 $493,800 $1,880
24 Scottsdale, AZ 22 $887,300 $3,370
25 Sacramento, CA 22 $373,800 $1,400

Source: Mashvisor, July 2018

As you can see from the data above, the property price level and the rental rates are equally important for determining the price to rent ratio in a particular housing market. While some of the markets with the highest price to rent ratios are notoriously famous for their high property prices, such as San Francisco, Napa, and New York, others like Charlotte, Sacramento, and Las Vegas are relatively affordable for homebuyers and real estate investors. However, what matters at the end of the day is that the rents there are even lower than the property prices, relatively speaking. 

If you are a real estate investor looking to buy your next investment property in a market with high rental demand, focus your property search on these cities. Alternatively, if you live in or are moving to one of those cities, have no doubts that the right choice there is to rent a property rather than to buy your own home. 

Author: Daniela Andreevska is Content Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. We provide all the real estate information in easy to understand visualizations.

 

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About the Author
This blog was written by Mashvisor, who are making it easier for investors to find and analyze investment properties by providing real estate analytics.

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