Top Locations 15 Cities with the Lowest Property Price to Rent Ratio by Eman Hamed December 20, 2018February 20, 2019 by Eman Hamed December 20, 2018February 20, 2019 To make wise investment decisions, real estate investors look at different factors in the housing market where they want to invest. After all, it’s no secret that the location is a major criterion that affects how investment properties perform in terms of ROI. Arguably the most important factor to consider in any location is the price to rent ratio. This is a simple metric that calculates the ratio of house prices to annual rental rates, which allows you to decide which option gives better financial rewards: buying or renting a property. It ranges between 1 – 15 (low) means it’s better to buy 16 – 20 (relatively high) means it’s better to rent 21 or more (high) means it’s much better to rent By looking at the price to rent ratio, real estate investors can determine whether or not buying a rental property in a housing market is a good investment decision. Now, you might be wondering “What is the best price to rent ratio for investors to stand by for a real estate investment?” Opinions vary. Some argue that the best places to invest in real estate are markets with a high price to rent ratio because demand for rental properties will be high. Related: 10 Best Places to Invest in Real Estate in 2019 However, that is not necessarily an accurate assumption. In fact, many real estate investors would consider buying an investment property only in housing markets with the lowest price to rent ratios, and here’s why. Why Invest in Cities with Low Price to Rent Ratio The first and most obvious reason to invest in markets with a low price to rent ratio is the lower property prices. Financing is a big concern for beginner property investors, and many of them don’t have a large amount of capital for buying an investment property in cash. Therefore, the lower prices in these markets present the best real estate investment opportunities. Moreover, data from Mashvisor’s predictive analytics shows that investment properties in these markets reap high rental income. This is another reason why low price to rent ratio is favorable for buying real estate, especially for cash flow property investors. The list of the cities we provide below proves it. To learn more about Mashvisor and how we’ll help you make faster and smarter real estate investment decisions, click here. Related: The Use of Predictive Analytics in Real Estate Investing What About Markets with High Price to Rent Ratio? As mentioned, just because markets with a high price to rent ratio have high demand, that doesn’t always make them the best places to buy rental properties. First, property prices in such locations can be crazy expensive! Take a look at San Francisco which has a price to rent ratio of 28. The median property price in the city is $1,564,111 – not many real estate investors have the finances for such a huge investment, making it very difficult to enter the real estate market. Second, while rental rates in such markets are higher, they don’t always generate enough rental income to justify the investment. Going back to our example, the average rental income in San Francisco is $4,627 and, according to Mashvisor’s Investment Property Calculator, it’ll only leave you with a cash on cash return of 1%. Thus, investing in locations with a high price to rent ratio is a good option if you’re investing for appreciation, not cash flow. Finally, it’s important to note that the price to rent ratio doesn’t indicate anything about absolute affordability – it only gives a relative breakdown for a city between renting and buying. It doesn’t tell you anything about the market’s conditions, whether it’s a seller’s market or buyer’s market, or rental expenses. In addition, it’s only one metric used when considering where to invest. Property investors must remember to calculate the cap rate, NOI, cash on cash return, and overall ROI for real estate investments. Related: What Are the Most Important Metrics in Real Estate Investment Property Analysis? Lowest Price to Rent Ratio by City If you’re convinced about investing in a real estate market with a low price to rent ratio, these 15 cities are our top picks for you. In all the following cities, you can find investment properties for lower prices, high rents, and a pretty good cash on cash return based on data provided by Mashvisor’s Investment Property Calculator. To find similar data for your city and neighborhood of choice, start out your 14-day free trial with Mashvisor now! Camden, NJ Median Property Price: $101,550 Price Per Sq/Ft: $75 Rental Income: $1,241 Price-to-Rent Ratio: 7 Cash on Cash Return: 5% Trenton, NJ Median Property Price: $140,947 Price Per Sq/Ft: $103 Rental Income: $1,510 Price-to-Rent Ratio: 8 Cash on Cash Return: 4% Sinton, TX Median Property Price: $128,775 Price Per Sq/Ft: $87 Rental Income: $1,126 Price-to-Rent Ratio: 9 Cash on Cash Return: 4% Waterloo, IA Median Property Price: $132,088 Price Per Sq/Ft: $86 Rental Income: $1,144 Price-to-Rent Ratio: 10 Cash on Cash Return: 4% Davenport, IA Median Property Price: $147,815 Price Per Sq/Ft: $111 Rental Income: $1,271 Price-to-Rent Ratio: 10 Cash on Cash Return: 4% Wareham, MA Median Property Price: $343,167 Price Per Sq/Ft: $218 Rental Income: $2,777 Price-to-Rent Ratio: 10 Cash on Cash Return: 4% Quincy, CA Median Property Price: $289,033 Price Per Sq/Ft: $170 Rental Income: $2,321 Price-to-Rent Ratio: 10 Cash on Cash Return: 3% Marion, IN Median Property Price: $96,315 Price Per Sq/Ft: $63 Rental Income: $783 Price-to-Rent Ratio: 10 Cash on Cash Return: 3% Dayton, OH Median Property Price: $106,669 Price Per Sq/Ft: $77 Rental Income: $871 Price-to-Rent Ratio: 10 Cash on Cash Return: 3% Wynnewood, PA Median Property Price: $257,737 Price Per Sq/Ft: $164 Rental Income: $2,004 Price-to-Rent Ratio: 11 Cash on Cash Return: 4% Cedar Rapids, IA Median Property Price: $151,845 Price Per Sq/Ft: $99 Rental Income: $1,178 Price-to-Rent Ratio: 11 Cash on Cash Return: 3% Saint Cloud, MN Median Property Price: $188,459 Price Per Sq/Ft: $109 Rental Income: $1,299 Price-to-Rent Ratio: 12 Cash on Cash Return: 3% Baltimore, MD Median Property Price: $233,291 Price Per Sq/Ft: $361 Rental Income: $1,582 Price-to-Rent Ratio: 12 Cash on Cash Return: 3% Lancaster, SC Median Property Price: $187,221 Price Per Sq/Ft: $98 Rental Income: $1,192 Price-to-Rent Ratio: 13 Cash on Cash Return: 4% Santa Rosa, CA Median Property Price: $675,598 Price Per Sq/Ft: $374 Rental Income: $4,177 Price-to-Rent Ratio: 13 Cash on Cash Return: 4% Click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice. The Bottom Line Real estate investors need to do their due diligence before buying a rental property in any location. Among the metrics to account for is the price to rent ratio. While some suggest investing in cities with a ratio higher than 16, cities with the lowest price to rent ratio are more favorable for beginner property investors. In these markets, you can buy for a lower price and charge high rents to generate positive cash flow. Start Your Investment Property Search! START FREE TRIAL Affordable MarketsBaltimore MDCamden NJPrice to Rent RatioSanta Rosa CATrenton NJ 0 FacebookTwitterGoogle +PinterestLinkedin Eman Hamed Eman is a Content Writer at Mashvisor. With a focus on market reports, she enjoys researching the state of the real estate market in different cities across the US. Eman also writes about trends, forecasts, and tips for beginner investors to gain the confidence and knowledge they need to make wise decisions. 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