In this blog, we will look into the price to rent ratio by city to help you decide where to invest in a traditional rental this year.
The real estate market across the US was shaken by the pandemic over the past couple of years. In 2021, new trends became the dominant factor, affecting the different markets, shifting the demand, and changing the price to rent ratio by city across the country.
Because of this trend, we studied the available options regarding investing in traditional rental properties based on their price to rent ratios, which you will read about in this article. You will also learn how you can locate the best price to rent ratio cities in 2022 based on real estate data from Mashvisor, focusing on the best rental markets in terms of average cap rates for traditional rental properties.
In real estate investing, you can determine a good market by comparing the price to rent value ratio by city. But a good price to rent ratio may not necessarily mean that your traditional rental will generate a positive cash flow.
So, we will focus on cities with a solid average cap rate, averaging between 3%-7%. This list is by no means exhaustive; there are thousands of other cities that are not included. However, if you want to access this data and more for any city or market across the US, you can use Mashvisor, which is the source that we’re using here.
Without further ado, let’s jump into it.
Related: 2022 Real Estate Market Forecast: Top 10 Predictions
Cities With the Highest Price to Rent Ratios
According to Mashvisor’s rent to value ratio by city data, these US cities have the most expensive property prices compared to their rental rates. In this list, we’ll be looking at cities with a relatively high price to rent ratio of 22 or above.
As mentioned in the introduction, this list only includes cities with an average cap rate of 3%-7%:
- Blythe, CA: 45
- Charleston, AR: 42
- Columbus, NC: 38
- Maple Park, IL: 37
- Pittsburg, KS: 36
- Bridgeton, NJ: 36
- Sandia Park, NM: 35
- Westcliffe, CO: 35
- Manchester, MI: 34
- Greybull, WY: 34
- Georgetown, TN: 33
- Scottsdale, AZ: 33
- Mountain Brook, AL: 32
- Green Lake, WI: 32
- Carthage, MO: 31
- St Petersburg, FL: 31
- Sarasota, FL: 30
- Danville, IN: 30
- Calhan, CO: 29
- Huntsville, AR: 28
- Malone, NY: 28
- Lakewood Ranch, FL: 27
- Philadelphia, PA: 27
- Springdale, AR: 27
- Oakland, TN: 26
- Chandler, OK: 25
- Winchester, VA: 25
- Lakeside, AZ: 25
- Berthoud, CO: 24
- Houston, TX: 24
- Great Falls, MT: 24
- Gilbert, AZ: 23
- Columbia, MD: 23
- Pasadena, MD: 22
- Aurora, IN: 22
Houston, TX is among the US cities with a relatively high price to rent ratio, indicating that property prices in the city are among the most expensive compared to their rental rates.
Should You Buy a Rental Property in a City with a High Price to Rent Ratio?
Now that you have a list of some of the markets with the highest price to rent ratio by city in 2022, what does it tell you exactly? How can you use the information to your advantage when making the decision to invest in a traditional rental property?
The fact is, there are both advantages and disadvantages to investing in a high price-to-rent ratio city.
Advantages
One of the advantages of investing in these markets is that high price to rent ratio is a good indicator that these are some of the largest cities in the US with the strongest economies, plenty of employment opportunities, and rapidly growing population.
As a real estate investor, you can see this as a signal that the market has a strong demand for long-term rentals. This is because a high price-to-rent ratio means that the property prices in the market are relatively high compared to monthly rental rates, so most people moving into the city will naturally prefer renting over buying a property.
And while Mashvisor’s data indicates these are high price to rent ratio cities in 2022, it doesn’t mean that rental rates are low in these markets.
In fact, some of the markets on this list have projected return on investment that is well above the national average, making them very profitable for investing if you have the cash to afford them.
Disadvantages
The disadvantage of investing in cities with high price to rent ratio is that these cities are considered among the primary real estate markets, which means that they feature some of the highest median property prices across the US.
Additionally, and since property prices are high, large investors make up a significant portion of the buyers, making these markets very hard to compete in for smaller investors with limited finances.
If you’re a beginner real estate investor and you’re considering buying a rental property in one of these markets, make sure to first figure out your financial options. Check out the different types of mortgages that you have access to before you jump into researching and analyzing the markets.
Largest US Cities With Moderate Price to Rent Ratios
Many consider the best price to rent ratio cities in 2022 as markets with a moderate rent to value ratio by city, which is 16-21 based on the current 2022 housing market. This next list includes the moderate price to rent ratio by city:
- Monroe, MI: 21
- Malibu, CA: 21
- Las Vegas, NM: 21
- Newberry, SC: 20
- Mahoning, PA: 20
- Old Forge, PA: 20
- Santa Ana, CA: 20
- Afton, TN: 19
- Amsterdam, OH: 19
- Harford, WI: 19
- Clayton, NC: 19
- Kansas, OK: 19
- Espanola, NM: 18
- Rock Hill, SC: 18
- Germantown, MD: 18
- Baltimore, MD: 18
- Columbus, GA: 17
- Greenwood, MS: 17
- Jacksboro, TX: 17
- Dayton, MN: 17
- Ash Fork, AZ: 16
- Greers Ferry, AR: 16
- Hutchinson, KS: 16
- Del Rio, TX: 16
- Marietta, OH: 16
Is It Best to Invest in These Cities?
Cities with moderate price to rent ratios are where most beginner real estate investors usually begin their investing careers.
Advantages
There is no straightforward answer to the question, “What is a good price to rent ratio for real estate investing?”
Cities with a moderate price to rent ratio are considered some of the top locations for investing. A price to rent ratio in this range indicates that home values and average monthly rents are balanced. Meaning, it is as affordable to buy a house in these markets as it is to rent one.
It also indicates that they are secure and stable rental markets that are generally affordable. Most of these cities are secondary markets with above-average employment, population, and economic growth rates.
These markets are excellent choices for beginner real estate investors, as they combine affordability with strong rental demand, leading to low vacancy/high occupancy rates and a solid rental income.
Savvy real estate investors will know how to set themselves apart to increase their profits compared to their competition. They are able to locate the best investment properties on the market before someone else does, as you will see later in this blog.
Disadvantages
There isn’t really a disadvantage to investing in a moderate price to rent ratio by city.
However, a common mistake investors make in these markets is making generalizations and thinking that every market is performing on the same level.
Generally, these markets require the greatest amount of market analysis and comparing numerous markets and properties in order to identify the ones that are most worthy of investing in.
However, this disadvantage can be easily overcome by using modern online platforms such as Mashvisor. They provide you with easily accessible tools and data to help you locate your next great investment quickly and with ease.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
Related: Price to Rent Ratio in the US Housing Market: What Should Investors Expect
Locations With Low Price to Rent Ratio by City 2022
Finally, let’s look at some of the best price to rent ratio cities 2022 with the lowest price to rent ratio by city (6-15), meaning these are markets where traditional rental rates are less affordable compared to residential property values.
- Albion, MI: 15
- Lakeview, OR: 15
- Damascus, AR: 14
- Baker, LA: 14
- Mayer, MN: 13
- Newport, KY: 13
- Spring Valley, MN: 13
- Kenova, WV: 12
- Mountain View, HI: 12
- Weaver, AL: 12
- Doraville, GA: 12
- Fort Madison, IA: 11
- Clinton, IL: 11
- Fort Mitchell, AL: 11
- Sidney, NY: 10
- Lake City, AR: 10
- Garden City, MI: 10
- Worth, IL: 10
- Adams, NY: 9
- Vienna, OH: 9
- Maxton, NC: 8
- Lauderdale Lakes, FL: 8
- East Palestine, OH: 7
- Lansford, PA: 7
- Potsdam, NY: 6
When Is It a Good Idea to Invest in These Cities?
Similar to cities with the highest price to rent ratios, the lower end of the price to rent ratio meter also comes with its own advantages and disadvantages when used correctly.
Advantages
Low price to rent ratio cities are typically smaller cities that provide rental property buyers with more affordable real estate investment opportunities.
In general, the median property prices in such cities are relatively low, and most investors should be able to afford a property there. So, if you’re planning on making money in real estate but your money is limited, then they might be the best options for you in the real estate market 2022.
These low prices also result in higher return on investment projections for rental properties since they generate high monthly rental rates compared to their prices—when they’re occupied.
These markets are also cheaper in terms of recurring expenses and the general cost of living, resulting in less monthly costs on your investment property. They also provide higher cap rates and cash on cash return values.
Disadvantages
The biggest disadvantage with low price to rent ratio cities is that people are less inclined to rent because it is generally cheaper to buy.
The preference for buying usually results in lower demand for rentals, and thus, lower occupancy rates. It means that you will still need to stand out on the market, or find niche markets where there are demand for rentals and a shortage of them.
What Is Price to Rent Ratio in Real Estate Investing?
Now that we’ve looked at the price to rent ratio by city in 2022, based on Mashvisor’s nationwide data, let’s take a step back and contemplate the importance of this concept in real estate.
Price to Rent Ratio Definition
The price to rent ratio by city is a straightforward metric that is relatively easy to understand when it comes to 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 Rate
Where: Average Annual Rental Rate = Average Monthly Rental Rate x 12
Therefore, by using the list of cities by price to rent ratio in 2022, real estate investors can know whether home values or traditional rental rates are more affordable in a certain market.
Generally, locations with high price to rent ratios are the ones where renting is cheaper compared to buying. However, due to prohibitive property prices in these markets, rental properties will generally not achieve very high cap rates or cash on cash return. Yet these markets are generally more stable because they have well-established economies and constant population growth.
On the other hand, markets with a lower price to rent ratio tend to see weaker demand and are harder to find tenants in. However, they offer higher return on investment projections compared to other markets, due to properties being much cheaper relative to monthly rental rates.
How Can I Find the Price to Rent Ratios for Each City?
Typically, being able to access accurate and updated real estate data and analytics is not a luxury available to many investors. Such information is usually only available to real estate agents and brokers with access to the MLS or professional real estate investors who devote all their time to collecting and analyzing data.
Beginner real estate investors, however, may find it difficult to get their hands on reliable sources of comprehensive real estate and rental data, such as price to rent ratios by city.
This is where Mashvisor comes in. Mashvisor is a platform that was designed to address this particular problem that most real estate investors have.
The platform offers you a number of tools that will allow you to search through the different markets across the US and find the perfect property for you to invest your money in. It uses a sophisticated machine-learning algorithm to come up with updated data and real estate analytics.
One of the tools that Mashvisor offers, the Investment Property Finder tool, comes with a feature that will help you specifically find markets based on their price to rent ratio.
Related: Investment Property Search: A 5-Step Guide
Bottom Line
When it comes to investing in real estate, knowledge is power.
And knowing the price to rent ratio by city in 2022 before investing can give you a great deal of knowledge about that market, which can, in turn, help you make better decisions and more profitable investments.
If you want to access unlimited power through real estate knowledge and data, sign up for a seven-day free trial of Mashvisor today, followed by 15% off for life.
