The Coronavirus pandemic has somewhat reversed the recent trends in real
estate investing, where Airbnb was the leading strategy for over a decade. As a result, in 2021 more and more investors are considering buying a traditional rental property. While there are numerous factors to consider, the price to rent ratio by city is one of the major indicators when choosing a top market and a lucrative investment property.
To help you locate a profitable real estate investment opportunity in the 2021 US housing market, we’ve analyzed nationwide rental data to provide you with up-to-date price to price to rent ratios in the largest US cities. The numbers below are calculated based on Mashvisor’s real estate market analysis conducted in February 2021. We’ve organized the markets into three groups: with high, moderate, and low price to rent ratio.
Cities with the Highest Price to Rent Ratio
According to Mashvisor’s real estate data and analytics, the US cities with the most expensive property prices compared to rental rates (a ratio of 21 or more) include:
- Boise, ID: 45
- Boulder, CO: 38
- Salt Lake City, UT: 37
- Santa Barbara, CA: 36
- New York City, NY: 35
- Montgomery, AL: 35
- Bend, OR: 35
- Boston, MA: 33
- Tuscaloosa, AL: 33
- Reno, NV: 33
- Honolulu, HI: 31
- Henderson, NV: 31
- Prescott, AZ: 30
- Charleston, SC: 30
- Austin, TX: 30
- Las Vegas, NV: 29
- San Francisco, CA: 29
- San Jose, CA: 29
- Knoxville, TN: 29
- Tulsa, OK: 28
- Miami Beach, FL: 28
- Naples, FL: 28
- Irvine, CA: 27
- Raleigh, NC: 27
- San Diego, CA: 27
- Greenville, SC: 27
- Scottsdale, AZ: 26
- Sarasota, FL: 26
- Los Angeles, FL: 26
- Portland, OR: 26
- Boca Raton, FL: 26
- Seattle, WA: 26
- Jersey City, NJ: 26
- Phoenix, AZ: 25
- Washington, DC: 25
- Colorado Springs, CO: 24
- Nashville, TN: 24
- Arlington, VA: 24
- Madison, WI: 24
- Lexington, KY: 23
- Durham, NC: 23
- Charlotte, NC: 23
- Tampa, FL: 23
- Tucson, AZ: 23
- Little Rock, AR: 23
- Grand Rapids, MI: 22
- Memphis, TN: 22
- Albuquerque, NM: 22
- Denver, CO: 22
- Fort Lauderdale, FL: 22
- New Orleans, LA: 22
- Virginia Beach, VA: 22
- Cincinnati, OH: 22
- Richmond, VA: 22
- Pittsburgh, PA: 21
- Kansas City, MO: 21
- Philadelphia, PA: 21
- Dallas, TX: 21
- Tempe, AZ: 21
Is Buying a Rental Property in a City with a High Price to Rent Ratio a Good Investment?
Now that you know the US markets with the highest price to rent ratio 2021 by city, this doesn’t tell you much about whether you should invest in traditional rentals there or not. Actually, this real estate investment strategy comes with some important advantages and disadvantages.
The Pros
On the positive side, these are some of the absolutely largest US cities with the strongest economies, the most vibrant job markets, and the fastest growing populations. From a real estate investor’s perspective, this immediately translates into strong demand for traditional rental properties.
This trend is further enhanced by the fact that property prices in these markets are relatively high compared to monthly rental rates. This means that when deciding between buying vs. renting, the majority of people will go for renting, which drives demand for long-term rentals even more up.
Related: 15 Cities with the Highest Rents in the US in 2021
Deeper analysis conducted by the Mashvisor investment property calculator reveals that although price to rent by city is high in these cities, this doesn’t mean that these markets feature the cheapest rent in America. Indeed, the traditional rental income in many of these locations is strong enough to produce above-average return on investment. Accordingly, some of the best cities for rental investing might be those with the highest price to rent ratios.
The Cons
On the negative side, most of the above-listed US cities are primary markets in real estate. Because of the dynamic economy and the strong labor market, they feature some of the highest median property prices nationwide. While this characteristic doesn’t necessarily make them not profitable for traditional rentals, it definitely makes them unaffordable for beginner real estate investors. If you consider buying rental properties in one of these markets, you should figure out your financial options before starting your real estate market research and rental property analysis.
Related: 15 Most Affordable Real Estate Markets in 2021
Largest US Cities with Moderate Price to Rent Ratio
Next, let’s take a look at the US housing markets with moderate price to rent ratios (16-20):
- Mesa, AZ: 20
- Alexandria, VA: 20
- St. Louis, MO: 20
- Miami, FL: 20
- Tallahassee, FL: 20
- Chicago, IL: 19
- Augusta, GA: 19
- Indianapolis, IN: 19
- Atlanta, GA: 19
- Clearwater, FL: 19
- Louisville, KY: 19
- Columbus, OH: 19
- Fort Myers, FL: 19
- Anaheim, CA: 19
- Houston, TX: 19
- Jacksonville, FL: 19
- Corpus Christi, TX: 18
- College Station, TX: 18
- Decatur, GA: 18
- Norfolk, VA: 18
- Orlando, FL: 17
- Minneapolis, MN: 17
- Fort Worth, TX: 17
- El Paso, TX: 17
- San Antonio, TX: 17
- Dearborn, MI: 17
- Arlington, TX: 16
- Irving, TX: 16
- Saint Petersburg, FL: 16
- Buffalo, NY: 16
- Fayetteville, NC: 16
- Evanston, IL: 16
- Milwaukee, WI: 16
- West Palm Beach, FL: 16
- Albany, NY: 16
Do These Markets Make for the Best Cities to Buy Property?
When wondering where to buy a traditional rental property, locations with moderate price to rent ratio by city 2021 might make for some of the optimal choices.
The Pros
While there is no straightforward answer to the question “What is a good price to rent ratio for real estate investing?”, cities with moderate values generally make for some of the top locations.
A price to rent ratio between 16 and 20 means that the average home value is on par with the average monthly rent. This translates into good, stable rental demand combined with general price affordability. Most of these US cities are secondary markets with above-average economic, employment, and population growth rates.
A moderate price to rent ratio by city indicates an excellent location for beginner investors. Such markets combine affordability with strong rental demand, leading to low vacancy rates, high occupancy rates, and good rental income. As savvy real estate investors know, these are the key factors when evaluating the rate of return on a rental property, whether looking at cap rate or cash on cash return.
The Cons
Buying investment properties to rent out on a monthly basis in such markets has no real disadvantage. However, as a careful investor, you should avoid making generalizations and treating all markets as equal. You should conduct real estate market analysis on each location that you consider before deciding if it’s a good fit for your budget, investment goals, and expected return on investment.
Locations with Low Price to Rent Ratio by City 2021
Last but not least, it’s time to look at the US cities where the traditional rental rates are the most expensive when compared to residential property values:
- Cleveland, OH: 15
- Dayton, OH: 15
- Baltimore, MD: 15
- Saint Paul, MN: 15
- Detroit, MI: 15
- Greenville, NC: 15
- Akron, OH: 15
- North Miami, FL: 15
- Rochester, NY: 14
- Youngstown, OH: 14
- Miami Gardens, FL: 14
- Lake Worth, FL: 14
- Syracuse, NY: 14
- Troy, NY: 13
- Springfield, IL: 13
- Portsmouth, PA: 13
- Mesquite, TX: 13
- Trenton, NJ: 12
- Aurora, IL: 12
Are These the Best Places to Invest in Real Estate 2021?
Similar to the locations with the highest price to rent ratio in 2021, those with the lowest values offer both benefits and drawbacks. Let’s have a look at the main ones.
The Pros
First and foremost, these are smaller cities – usually tertiary markets – which provide rental property buyers with more affordable real estate investment opportunities. Generally speaking, these markets have reasonably priced investment properties for sale, so investors will not have to spend millions to buy an income property. That makes the entry of beginner investors easier.
Related: 8 Cheapest States to Buy a House for Investment in 2021
Additionally, since home values are cheap compared to the average rental estimate, these US cities come with a strong potential for excellent return on investment. Both traditional cash on cash return and cap rate depend on the property price, the one-time startup costs, the recurring expenses, and the rental income. Thus, markets with a low price to rent ratio by city offer some of the most profitable long-term rental properties in the 2021 US housing market.
The Cons
Unfortunately, just like in any other aspect of real estate investing, these markets are not perfect. The most important factor to consider when deciding where to buy a rental property is that generally rental demand might be weak in cities with low price to rent ratio. This is because many people go for purchasing a home when choosing between buying vs. renting. It doesn’t make much sense to pay high rent month after month, rather than to buy a relatively affordable home once.
If you are curious to figure out how much markets have changed over the past year, you can check out the price to rent ratio by city 2020.
What Is Price to Rent Ratio in Real Estate Investing?
Now that we’ve had a look at the price to rent ratio reviewed by city in 2021, based on Mashvisor’s nationwide data, we might want to take a step back and revise this concept in real estate.
What Is the Definition?
The price to rent ratio by city is actually one of the most straightforward and easiest to comprehend metrics in residential real estate investing. It is simply the average property price for a market divided by the average annual rental rate. Here is how to calculate the price to rent ratio:
Price to Rent Ratio Formula:
Price to Rent Ratio = Average Property Price/Average Annual Rental Rent = Average Property Price/(Average Monthly Rental Rate x 12)
Consequently, the 2021 price to rent ratio by city tells real estate investors whether home values or traditional rents are more expensive in a market. In general, locations with high ratios – that is, the cheapest places to rent – enjoy strong rental demand but might not offer the best cap rate and cash on cash return. Alternatively, markets with low ratios experience weaker demand but might provide a good return on investment if you buy a winning property and market it better than the competition.
As you can see, while this metric is easy to calculate, it is not very easy to apply to your investment property decisions. The power of understanding price to rent ratios lies in striking the right balance between demand, affordability, and profitability. Thus, when choosing where to buy a traditional rental property, you should look into many other factors such as the average property price (to make sure home values are within your budget), the occupancy rate (to make sure you will be able to rent out your income property), and the average rental income as well as the city-average cash on cash return and cap rate.
To find top-performing traditional rental properties in any US housing market, regardless of the prevailing price to rent ratio, sign up for Mashvisor and enjoy a 15% discount.
How Do You Find Price to Rent Ratios in Your Area?
Unfortunately for investors, good real estate data and analytics are not widely available for just about anyone. They are usually restricted either to real estate agents and brokers with access to the MLS or professional real estate investors who devote all their time to collecting data and analyzing it. Beginners find it hard to lay their hands on reliable comprehensive rental data, including the price to rent ratio by city.
Well, if you want to deepen your analysis of the best places to invest in real estate 2021 for your particular needs and expectations, you’ve come to the right place. Mashvisor is the most trusted source of real estate data in the US housing market. When it comes to price to rent ratios, you can keep an eye on our real estate blog where we frequently publish updates on what ratios investors can expect nationwide.
But that’s not all. Once you’ve selected a couple of US cities which match your criteria, you can conduct neighborhood analysis with the Mashvisor real estate heatmap. This real estate investment tool serves as both a home values map and a traditional rental income map, showing you the areas with the lowest property prices and rental rates in red and the highest home values and rents in green. With this color-coded real estate market analysis tool, you can estimate which neighborhoods within a city are expected to have a high price to rent ratio and which ones – a low.
Sign up for Mashvisor now to get access to the real estate heatmap tool.
In real estate investing, knowledge is power. Now that you know what to expect in terms of price to rent ratio by city 2021 in the US housing market, you are much better equipped to find a profitable traditional rental property. Even though this metric is not enough to evaluate the investment potential of an entire market or a specific income property, it is a good indication of what you can anticipate in a certain location.
In case you need some extra help in finding lucrative long-term rental properties nationwide, sign up for Mashvisor now.
