Ranking by Rent-to-Price?

Question

Hi everyone,

Newbie here. Looking for my very first rental property purchase (buy and hold). So first, I'd need to find the right US market. Would like to base this search on the RTP ratio. Can someone pls point me to the latest RTP ratio ranking or stats for (all or at least all major / significant) US markets?

Thanks a bunch,

Dzung.

Bill B. · Answer

Rent to price wouldn’t give you a ratio that means anything…

Imagine if you will….
2 different $400k properties that rent for $4k< exactly 1%.
.
maybe one is a new build and 1 is a 100 year old boomtown build.
1 has a $500/mo Hoa, one doesnt.
1 is in a Florida flood plain, one is in AZ
1 has property taxes of $6,000/yr, one is $2,000/yr
1 is a condo and one is oceanfront SFR

1 is in a state with a 10% income tax and one is in a state with no income tax

1 has $600/yr insurance and 1 has $3,600/yr insurance

One is in a state that won’t let you evict without cause and makes you pay relocation fees, and has rent control and/or rent caps.

If you truly only cared about rent to price ratios you would only buy in small Midwestern towns. By small, I mean sub 10,000 people. There you can get 3% rule properties. And lose money year after year.

Ps. Anyone wondering about the weird space and the random dots. That’s my continued fight with this horrible forum formatting software that throws my cursor up to the 2nd line everytime I hit return with a period and then a couple spaces and then another period. And I didn’t clean it all up after the 5th or 6th time.

pps. That’s funny. MOST of the weird formatting went away when I posted.

Michelle Bateman · Answer

Congrats on this first step! I'm not sure there is a one-stop shop for this type of resource however, I would recommend looking specifically at larger cities in the midwest, they will have the "best" rent to price ratios! It will also likely depend on your risk level for class of property, the lower the class of property the "better" the rent to price ratio will be.

DM me if you want to chat more about this topic! I am an investor friendly real estate agent in KC and we have a great market for this type of strategy.

Eric Greenberg · Answer

^^ same as above with Philly. If you are interested in buying here get a top tier team first before jumping on a on or off market deal. That being said id also take any if AI’s input with a grain of salt…

• ‘Local Laws: Pennsylvania laws balance the rights of landlords and tenants. Philadelphia has specific regulations that landlords should be aware of.’  
• This may be true but note Philadelphia is NOT Pennsylvania when it comes to landlord/tenant laws.

Dzung Doan · Answer

Hi guys,

Thanks a bunch for your generous responses. Learnt a few things. Wondering if you guys could pls offer further generosity by addressing my next follow up question below?I understand any significant city is very diverse with different neighborhoods, with different RTP. But as a starter, I'm trying to locate a city with good potential. W/o much info and familiarity, I suppose using a high level stats like the average RTP ratio of a city might provide a reasonable 1st filter to have a short list for further investigation. Wouldn't you agree?

Further context: Newbie, never owned a US home before. Living in Los Angeles, looking for out-of-state rental property investing (buy and hold). So this would be 1st purchase. Hope to acquire one by year-end (ideally by mid-fall at the latest). At least for now, would need to hire a local property manager, and perhaps generally build a local team according to my newbie knowledge (prefer as passive of an investment as possible).

Further context: Right now, have a somewhat small capital to start with (about $35K - $50K immediately available liquid cash, with additionally $3K - $6K monthly savings rate). This 1st purchase would preferably be a relatively small one, perhaps somewhat of an experimental nature to learn the rope (so even failure would not be fatal). Supposedly would be using conventional loan (30 year mortgage, 20% - 25% down payment).

Given this, came across this BiggerPockets article about presumably top 10 cash flow markets for this year. https://www.biggerpockets.com/...

I pointed this article to ChatGPT-4, explained my situation and requirements, and asked it for analysis of these markets and suggestions. Of course it provides analysis based on its data up to 2021 only (it doesn't have latest knowledge as of now, 2023). Following, I'll show you guys 1st its suggestions (specifically for me); then, if you care further, I'll show next its detailed analysis and rationales for all these markets.

Wondering if you'd mind skimming through at least its suggestions and give me some comments? Do you think they're sensible? Would you (kind of) agree with these suggestions, so that I might start my next step of investigating these specific markets for my potential 1st purchase? Thanks a bunch in advance!!!

Alright, these are ChatGPT-4's insights for me:

SUGGESTIONS:

Based on this deeper analysis and your specific situation (being a newbie with somewhat limited initial capital and monthly savings, interested in rental properties, and seeing the first purchase as somewhat experimental), my suggestions have been adjusted somewhat.

Here's the revised shortlist:

• Memphis, Tennessee: With a strong rental demand, moderate property prices, and a favorable rent-to-price ratio, Memphis is a great market to consider. Given the strong healthcare and education sectors, employment opportunities remain steady, promoting steady rental demand. As a novice investor, the relative affordability of this market could make it an excellent starting point.
• Cleveland, Ohio: Similar to Memphis, Cleveland offers a stable market with reasonable property prices and rent-to-price ratios. The healthcare and education sectors drive employment, and the city is also a hub for a number of Fortune 500 companies. As such, the city's economic stability could provide a favorable environment for your first investment.
• Birmingham, Alabama: Birmingham offers a good rental demand, affordable property prices, and a relatively favorable rent-to-price ratio. The city's economy is on the upswing, driven by the medical and education sectors. The city also has a range of neighborhoods offering opportunities for a variety of investment strategies.

In each of these markets, remember to pay attention to the neighborhood-level analysis, as market conditions can vary greatly within the city. Always ensure to run your numbers carefully, taking all costs into account, and be prepared to adjust your strategy based on changing market conditions. And as always, local expertise and professional advice can be invaluable when starting your real estate investing journey.

DETAILED ANALYSIS:

Alright, let's go deeper into the analysis of each city. Please note that the data is not real-time and is based on trends and statistics available up until 2021. The real estate market can fluctuate due to a variety of factors, and what's more, these descriptions provide a broad overview. Micro-markets within each city may perform very differently from the city as a whole.

1. Detroit, Michigan

• Economic Factors: Detroit is historically known for its automotive industry, with major companies like General Motors and Ford based there. The city is attempting to diversify its economy with initiatives in sectors like tech and healthcare.
• Rental Demand: Detroit has had higher-than-average rental demand due to lower property prices and higher yields.
• Property Prices: Property prices have historically been low, especially in comparison to national averages.
• Rent-to-Price Ratio: Higher than average due to low property prices and decent rental rates.
• Market Trends: The city is undergoing economic revitalization, which could potentially drive future real estate growth.
• Employment Opportunities: Job growth is steady but still recovering from past economic struggles.
• Population Growth: Detroit has faced population decline for several decades, but the rate of decline has been slowing.
• Vacancy Rates: Higher than national average, which can be both an opportunity and a challenge.
• Local Laws: Michigan laws tend to be landlord-friendly.

2. Baltimore, Maryland

• Economic Factors: Baltimore's economy is mixed, with strength in healthcare, professional services, and port-related commerce.
• Rental Demand: There is decent rental demand, especially in growing neighborhoods.
• Property Prices: Prices vary dramatically by neighborhood.
• Rent-to-Price Ratio: Variable, with some neighborhoods offering high rental yields.
• Market Trends: Certain neighborhoods are experiencing redevelopment and growth.
• Employment Opportunities: Jobs are growing, especially in healthcare and tech sectors.
• Population Growth: Population is stable but growth is slow.
• Vacancy Rates: Varies by neighborhood, with higher vacancy rates in economically challenged areas.
• Local Laws: Maryland laws balance landlord and tenant rights, but some cities, like Baltimore, have specific regulations that can be more tenant-friendly.

3. Memphis, Tennessee

• Economic Factors: Memphis' economy is diversified, with sectors in transportation, shipping, and music tourism.
• Rental Demand: Steady, especially in affordable neighborhoods.
• Property Prices: Affordable in comparison to many other major cities.
• Rent-to-Price Ratio: Higher than average due to low property prices and decent rental rates.
• Market Trends: Steady, with a focus on affordable housing.
• Employment Opportunities: The job market is mixed, with some sectors growing more than others.
• Population Growth: Slow but steady.
• Vacancy Rates: Higher than national average, but depends on neighborhood.
• Local Laws: Tennessee laws tend to be landlord-friendly.

4. Cleveland, Ohio

• Economic Factors: Cleveland has a diversified economy, with healthcare, manufacturing, and professional services leading the way.
• Rental Demand: Variable depending on neighborhood, with higher demand near universities and hospitals.
• Property Prices: Generally affordable compared to national averages.
• Rent-to-Price Ratio: Moderate, can be higher in desirable neighborhoods.
• Market Trends: Steady with some areas experiencing revitalization.
• Employment Opportunities: Mixed, with some sectors like healthcare showing growth.
• Population Growth: There has been a long-term trend of population decline, but it is stabilizing.
• Vacancy Rates: Higher than national average, but varies significantly by neighborhood.
• Local Laws: Ohio laws are generally landlord-friendly.

5. Birmingham, Alabama

• Economic Factors: The economy is diversified with healthcare, finance, and education being key sectors.
• Rental Demand: Steady, with higher demand in affordable neighborhoods.

• Property Prices: Affordable compared to national averages.
• Rent-to-Price Ratio: Moderate and can be higher in certain neighborhoods.
• Market Trends: Steady growth, with some neighborhoods experiencing revitalization.
• Employment Opportunities: Mixed, but some growth in healthcare and education sectors.
• Population Growth: Slow but stable.
• Vacancy Rates: Higher than national average, but variable depending on the neighborhood.
• Local Laws: Alabama laws are generally landlord-friendly.

6. Philadelphia, Pennsylvania

• Economic Factors: Philadelphia has a diverse economy with strengths in sectors such as education, healthcare, financial services, and biotechnology.
• Rental Demand: High, especially in areas close to universities and healthcare centers.
• Property Prices: Varies dramatically by neighborhood.
• Rent-to-Price Ratio: Varies by neighborhood, with some offering high rental yields.
• Market Trends: Some neighborhoods are experiencing significant growth and redevelopment.
• Employment Opportunities: Growing, particularly in healthcare, education, and tech sectors.
• Population Growth: Slow but steady.
• Vacancy Rates: Variable, with some neighborhoods having higher vacancies than others.
• Local Laws: Pennsylvania laws balance the rights of landlords and tenants. Philadelphia has specific regulations that landlords should be aware of.

7. Dayton, Ohio

• Economic Factors: Dayton's economy is driven by sectors like healthcare, education, and defense and aerospace (owing to the Wright-Patterson Air Force Base).
• Rental Demand: Steady, especially in affordable neighborhoods.
• Property Prices: Generally affordable compared to national averages.
• Rent-to-Price Ratio: Higher in desirable neighborhoods.
• Market Trends: Stable, with some areas experiencing revitalization.
• Employment Opportunities: Mixed, with some sectors like healthcare and defense showing growth.
• Population Growth: Slow but stable.
• Vacancy Rates: Higher than national average, but varies significantly by neighborhood.
• Local Laws: Ohio laws are generally landlord-friendly.

8. Milwaukee, Wisconsin

• Economic Factors: Milwaukee's economy is diverse with strengths in manufacturing, healthcare, education, and finance.
• Rental Demand: High in areas close to universities and growing neighborhoods.
• Property Prices: Varies by neighborhood.
• Rent-to-Price Ratio: Can be higher in desirable neighborhoods.
• Market Trends: Some neighborhoods are experiencing significant growth and redevelopment.
• Employment Opportunities: Mixed, with some sectors like healthcare and education showing growth.
• Population Growth: Slow but steady.
• Vacancy Rates: Varies by neighborhood, with higher vacancy rates in economically challenged areas.
• Local Laws: Wisconsin has a balance of landlord-tenant laws.

9. Little Rock, Arkansas

• Economic Factors: Little Rock's economy is diverse, with sectors such as healthcare, government (state capital), and finance playing key roles.
• Rental Demand: Steady, particularly in affordable neighborhoods.
• Property Prices: Generally affordable compared to national averages.
• Rent-to-Price Ratio: Moderate and can be higher in certain neighborhoods.
• Market Trends: Steady growth, with some neighborhoods experiencing revitalization.
• Employment Opportunities: Growing in healthcare and tech sectors.
• Population Growth: Slow but steady.
• Vacancy Rates: Higher than national average, but depends on the neighborhood.
• Local Laws: Arkansas laws are known to be landlord-friendly.

10. Rochester, New York

• Economic Factors: Rochester's economy has transitioned from manufacturing-based to service-based, with strong healthcare and education sectors.
• Rental Demand: High, particularly in areas close to universities and healthcare centers.
• Property Prices: Moderate compared to national averages, varies by neighborhood.
• Rent-to-Price Ratio: Can be higher in desirable neighborhoods.
• Market Trends: Stable, with some neighborhoods seeing growth.

• Employment Opportunities: Growth is noticeable, particularly in healthcare, education, and technology sectors.
• Population Growth: The population is relatively stable, with slow growth.
• Vacancy Rates: Varies by neighborhood, with some areas having higher vacancies than others.
• Local Laws: New York has strong tenant protections, and landlords must be aware of and comply with these regulations.

11. Columbus, Ohio

• Economic Factors: Columbus has a diverse economy with strengths in education, healthcare, insurance, banking, fashion, defense, aviation, food, logistics, steel, energy, and technology.
• Rental Demand: High, particularly in areas close to universities and growing neighborhoods.
• Property Prices: Moderate compared to national averages, varies by neighborhood.
• Rent-to-Price Ratio: Can be higher in desirable neighborhoods.
• Market Trends: Stable growth with some neighborhoods seeing redevelopment.
• Employment Opportunities: Growing, particularly in education, healthcare, and technology sectors.
• Population Growth: Columbus has seen faster population growth than many other parts of Ohio.
• Vacancy Rates: Varies by neighborhood, generally lower than national averages.
• Local Laws: Ohio laws are generally landlord-friendly.

12. St. Louis, Missouri

• Economic Factors: St. Louis has a diversified economy with sectors such as healthcare, education, and services playing major roles.
• Rental Demand: Steady, especially in affordable neighborhoods.
• Property Prices: Generally affordable compared to national averages.
• Rent-to-Price Ratio: Moderate and can be higher in certain neighborhoods.
• Market Trends: Steady growth, with some neighborhoods experiencing revitalization.
• Employment Opportunities: Mixed, with some sectors like healthcare and education showing growth.
• Population Growth: Slow but stable.
• Vacancy Rates: Higher than national average, but depends on the neighborhood.
• Local Laws: Missouri laws are generally landlord-friendly, but St. Louis has specific regulations to be aware of.

These summaries should give a broad understanding of each market. The next steps would typically involve more granular, neighborhood-level analysis, property inspections, and seeking advice from local real estate professionals. Always remember that investing in real estate involves risk, and it's important to do thorough due diligence before making a decision.

Linda Labbe · Answer

I love Detroit  the 2 % rules still works there  yes care is needed  its a block by block city but with a great team on the ground opportunities abound  more then willing to share what we have learnt if anyone wants to chat

Ned Carey · Answer

@Dzung Doan As @Bill Brandt poits out RTP ration doesn't mean much. It doesn't take risk into acount. High rent to price with high risk may not be a better bet than a moderate risk to price with a very low risk profile.

Mario I Fernandez · Answer

Hey Dzung,

There are a lot of place that you can get a good RTP ratio. One question is if you are planning to live in the city of your investment or not? Because managing yourself or hiring a management company could make the difference.

Almost in any city of Florida you can find a property with a good RTP ratio. In the big cities rents are growing by the day.

Ranking by Rent-to-Price?

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