Gross Rental Yields and Price-to-Rent Ratio for All States

Price to rent ratio (P/R) is a great and simple calculation showing the attractiveness of a certain Real Estate market or area. It compares median house price and median rent in that market. This ratio actually says how many annual rents would have to be spent for buying an average house. Some markets with very high ratio (i.e. California P/R is 17) do not show such a good opportunity for an investment, because the return on investment would most probably be low. This ratio can help an investor to decide which market to invest in. However it cannot be taken as the only decision maker, since even in high P/R markets there can be investments which will have high returns.

 

 

Gross Rental Yield is a very similar calculation as the P/R ratio. In fact it is calculated just by dividing the Annual Rent by the House Price.

 

 Many investors looking for an out-of-state investment property are considering the actual market condition in the various states. This is especially important for investors who are not counting (or speculating) on great appreciation, but rather on long term holding strategy and positive cashflow from renting out the property. I am one of these investors as well, and therefore I have calculated the price-to-rent ratio and rental yields for all US states.

It was quite hard to get together the required median rents and prices. In the end I was recommended by BP members to use “Fair Market Rents” estimated by HUD for section 8 tenants. These rents are however higher than the real market rents. Therefore I have taken the median rent of a 2-bedroom unit and decreased it by 20%. The Fair Market Rents are freely accessible at the HUD website: http://www.huduser.org/portal/datasets/fmr.html

Finding the median house prices was much easier. I simply used Trulia.com, because they have this number calculated for each state: http://www.trulia.com/city/ (except of Missouri for some reason).

The rest was quite easy – simply I put everything into a table, which is displayed below. I do realize that the numbers might not be that exact, since I had to use the section 8 rents, but if there is a mistake in the numbers, it would be a systematical mistake which would influence all of the numbers. Therefore this table can be very useful as a benchmark of all the states.

 

 

As expected, California and Nevada do not provide such high rental yield as some less popular states, such as Dakotas, Oklahoma, etc. This can definitely be useful for many real estate investors looking for out-of-state investments or all foreign investors coming to buy a house in the USA.

If you have some suggestions or comments let me know. Maybe somebody will advice better data sources for the calculation too.