BiggerPockets

I don't know where you can find the average rent data and getting the average price data won't be helpful, because the higher end sales (which are not rentals) will skew that number high (as it relates to rentals). So, finding a ratio of average monthly rents to average prices won't give you any meaningful information regarding rentals.

However, if you look around, I think you'll find that the average monthly rent-to-price ratio for rentals throughout the United States is about 0.8% to 1.0% (even a little lower in some bubble areas). There is no study behind that, I'm just going off my experience, both in the real world and here on BP. If you keep your eyes open, I believe that you'll see that is pretty close.

Having said that, all that ratio tells you is what the failures are paying for their property. The truth is that the vast majority of rentals in this country are owned by individuals and the vast majority of newbies fail. So, when you see that the average monthly rent to price ratio in your area is 1%, that just tells you that this is the ratio the losers are buying at. If you buy at the same ratio, you'll fail also.

Mike

I'm going to have to agree with Mike that I just don't see this being meaningful.

Around the Denver area, rents are pretty consistent. They range from about $500 for a dumpy one bed in a C apartment up to maybe $1500-1600 for a nice house. A three bedroom basic post war ranch goes for around $900-1000, depending on whether or not it has a basement and a garage.

But, prices are all over the map. You can pay 2X or more for that same ranch in different locations. The rent is about the same, though. So, this ratio varies by a factor of two or three. Its even worse for nicer houses. I have a friend who moved here about a year ago from MN. He's renting a house for $1600 a month that would cost $350K to buy. Average it across the city, and what does it tell you? Not much.

Thanks for all the responses. It's pretty clear that averages never speak for every neighborhood and every price range house, but, averages aren't supposed to do that. They are supposed to act as signals, of sorts. As an example, take NYC and Macon, GA. NYC may have numbers like price $800k, rental $2000, ratio 0.25%. Macon may have price $80k, rental $700, ratio 0.88%. Of course that doesn't mean every house, every area, every time - but seeing 0.25% and 0.88% would be a pretty strong indication of what to expect as one starts scanning the local market.

I am using CL to get data. As with anything else, I'm using that data with a grain of salt. I have been advertising a house for rent for 3 months there, starting at $1,450... then $1,375... and now $1,295. So who knows what's real. I used to get $1,475 a month for years, but that particular city has seen a reduction in rents. Better would be to get MLS rental data where the actual rent figure is entered. But in any case, CL data will have some meaning, and I think I will discount rental figures by 10% to give a more realistic view.

As a real example of what I'm considering, Indianapolis has popped up on my radar. It seems the price to rent ratio there is often 1.2% or higher for the smaller houses. The thing I'm considering now is, yeah it's a better rent, but repairing the roof, putting in new carpet every few years, painting, replacing a stove, all those things cost the same for a $60,000 house as a $200,000 house, but it's going to hurt a whole lot more on the bottom line. In the same way that smaller houses sell for more per s.f., it almost seems like smaller houses need to command a higher rent per s.f. to offset some of the costs that are the same no matter the size of the house. From my early research, it seems like Cleveland, Cincinnati, and Indianapolis all have a good possibility. I need to look into occupancy rates next.

Alex

Your first inclination about price to rent ratio was correct, however, it's not the average price to rent ratio of the area that matters, it's the price to rent ratio of the deal you get that matters. As a general rule, you'll need to have monthly rents of about 2% of the acquisition cost (purchase price + rehab) if you want a property to cash flow correctly. On more expensive houses, it can be a little less than 2.0 and on multiple units, it can be significantly higher. However, as Jon said 1.2 or lower are losers.

I live in Ohio, which is an excellent rental market and I can tell you for a fact that the average rental in my area sells for 1% of the purchase price. These people that buy at 1% are ALL losing money on their property. I have bought properties with monthly rents from 2% to 8% of the acquisition cost, which is why my rentals actually make money.

The thing I'm considering now is, yeah it's a better rent, but repairing the roof, putting in new carpet every few years, painting, replacing a stove, all those things cost the same for a $60,000 house as a $200,000 house, but it's going to hurt a whole lot more on the bottom line.

I completely disagree with this. I CERTAINLY would not put the same things in a $60,000 house (that I paid $30K for) that I would put in a $200,000 house. With low income rentals, the watchwords are safe and clean. I don't buy new appliances for low income rentals - I buy used (dirt cheap). Someone GAVE the a stove that I put in the last rental I rehabbed. Carpet - I might put nice carpet in a $200,000 house - I put $.58 per square foot carpet in a rental IF I MUST! Otherwise, I'll just paint the old wood floor - yes paint! You get the idea.

Mike