Real estate investors looking for a strong rental market would do well to consider markets with a high price-to-rent (PTR) ratio. The higher the ratio, the higher the demand for rental property. A PTR ratio is useful in determining whether renting or buying a home is a more affordable option for residents of a given area.
Commercial real estate investments platform DiversyFund calculated the 15 cities with the highest PTR ratio, using May 2021 data from Zillow. The PTR ratio is calculated by dividing the median sale price of homes by the median annual rent of homes in a city. The higher the ratio, the better it is to rent a house rather than buy a house in that city.
A low PTR ratio indicates that the costs to rent are similar to the cost to buy property, meaning more renters may make the decision to become homeowners rather than continuing to rent a similar home. A high PTR ratio indicates the annual cost of renting a property is considerably less than what it would cost to own. The ratio doesn’t speak to the overall affordability of a property in a particular city, but to the relative costs of renting compared to owning.
Keep reading to discover which markets have the highest PTR ratios in the country and how that might affect real estate investors.