{"id":153678,"date":"2023-06-02T12:02:18","date_gmt":"2023-06-02T18:02:18","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=153678"},"modified":"2024-01-08T07:15:30","modified_gmt":"2024-01-08T14:15:30","slug":"rents-exceed-housing-payments-in-just-four-markets","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/rents-exceed-housing-payments-in-just-four-markets","title":{"rendered":"Rents Exceed Housing Payments In Just Four Markets\u2014Are The Days Of Cash Flow Over?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC6345090044\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Detroit, Philadelphia, Cleveland, and Houston. Those are the only four remaining cities where it costs less to buy a typical home than to rent, according to a new&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.redfin.com\/news\/rent-vs-own-2023\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">report<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;from Redfin. The analysis compared March home values and rental estimates assuming a 5% downpayment and a 6.5% mortgage rate for the 50 most populous metro areas in the United States. Back in January 2022, an&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.realtor.com\/research\/january-2022-rent\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">analysis<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;from Realtor.com showed that buying a home was more affordable than renting in more than half of the largest metros. But mortgage rates have increased since then while&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rents-are-increasing-rapidly-in-these-states-despite-flattening-nationally\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">rent prices have flattened<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;nationally.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Naturally, the question for investors is whether buying a home can yield cash flow now that housing payments (including&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/this-is-the-hardest-property-insurance-market-ever-whats-forcing-carriers-to-pull-out-in-droves\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">insurance<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;and&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/states-without-property-taxes\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">property taxes<\/span><\/a><span data-preserver-spaces=\"true\">) exceed fair market rent in most markets.&nbsp;<\/span><strong><span data-preserver-spaces=\"true\">Spoiler: The long-term rental strategy is still viable\u2014but investors face more challenges.&nbsp;<\/span><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Should You Be Investing in These Four Markets?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The typical rent exceeds the typical housing payment in only four metro areas, according to Redfin\u2019s estimates. In Detroit, estimated rents exceed estimated housing payments in about 80% of properties, and it\u2019s about 24% less expensive to buy than it is to rent.&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-table is-style-regular\"><table class=\"has-fixed-layout\"><thead><tr><th>Market<\/th><th>Median Monthly Mortgage Payment<\/th><th>Median Monthly Rent Payment<\/th><th><strong>Premium (%) of Mortgage to Rent Cost<\/strong><\/th><th><strong>Premium ($) of Mortgage to Rent Cost<\/strong><\/th><th><strong>Share of Properties&nbsp; Cheaper to Rent<\/strong><\/th><\/tr><\/thead><tbody><tr><td>Detroit, Michigan<\/td><td>$1,296<\/td><td>$1,697<\/td><td>-23.6%<\/td><td>-$401<\/td><td>79.9%<\/td><\/tr><tr><td>Philadelphia, Pennsylvania<\/td><td>$1,869<\/td><td>$2,000<\/td><td>-6.6%<\/td><td>-$131<\/td><td>59.3%<\/td><\/tr><tr><td>Cleveland, Ohio<\/td><td>$1,730<\/td><td>$1,800<\/td><td>-3.9%<\/td><td>-$71<\/td><td>56.8%<\/td><\/tr><tr><td>Houston, Texas<\/td><td>$2,343<\/td><td>$2,371<\/td><td>-1.2%<\/td><td>-$28<\/td><td>52.4%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">None of these metros saw skyrocketing home values during the pandemic relative to the rest of the country. While metros like Phoenix and Miami experienced huge price booms, prices have also fallen more rapidly in those areas. Comparatively, Detroit and Cleveland only realized a fraction of the appreciation\u2014but periods of falling prices were also less pronounced in these cities, according to Redfin.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Still, the 10-year appreciation rate in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/MIXRNSA\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Miami<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;(from March 2013 to March 2023) was about 26% higher than the ten-year appreciation rate for&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/DEXRSA\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Detroit<\/span><\/a><span data-preserver-spaces=\"true\">, according to the S&amp;P\/Case-Shiller Home Price Index. And there are other advantages to buying in a cyclical market\u2014if you time your purchase and sale according to market fluctuations, you can realize even greater returns.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But investors looking for a steady, reliable investment may find these cities to be more appealing than other markets. Detroit may even offer some investors the opportunity to buy in cash since the median home value for April was a lean&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.redfin.com\/city\/5665\/MI\/Detroit\/housing-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">$75,000<\/span><\/a><span data-preserver-spaces=\"true\">, and the market is ideal for generating cash flow due to its rent-to-price ratio. But of course, there are other factors to consider as well. For example, Detroit has a violent crime index&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.bestplaces.net\/crime\/?city1=52622000&amp;city2=51245000\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">nearly double<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;that of Miami\u2019s.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Few Opportunities for Cash Flow in Pandemic Boomtowns<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In addition to notoriously expensive metros like San Jose and San Francisco, where buying a home costs more than twice as much as renting on a monthly basis, pandemic boomtowns like Sacramento, Las Vegas, Phoenix, and Austin each have a single-digit share of properties for which the estimated rent payment exceeds the estimated mortgage payment. These cities experienced an influx of new residents during the pandemic, which caused prices to skyrocket, but now, home values are falling.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">It\u2019s Not Just About the Market\u2014It\u2019s About the Property<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In the following markets, Redfin found fewer than 0.5% of properties to be advantageous to buy versus rent:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">San Jose, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">San Francisco, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Oakland, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Anaheim, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Los Angeles, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">San Diego, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Sacramento, California<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Seattle, Washington<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Denver, Colorado<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Portland, Oregon<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">In the remaining metros, at least a small share of properties still have the opportunity to generate cash flow with today\u2019s mortgage rates. That means that smart investors who seek out viable properties may still find great investment opportunities. It comes down to crunching the numbers for each individual deal, and an&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/agent\/match\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">investor-friendly real estate agent<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;may be able to steer you in the right direction.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Should You Wait for Mortgage Rate Relief?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">How much would mortgage rates need to decline for investors to collect rent in excess of the typical housing payment in most areas? Currently, the homeownership premium is about 25% nationally, with the median monthly mortgage payment estimated at $3,385 and the median rent payment estimated at $2,715. If mortgage rates were to fall to 4%, that would shrink the homeownership premium to 1% and open up new markets where it\u2019s cheaper to buy. But only at a mortgage rate of 3% would the estimated median rent payment nationwide exceed the typical housing payment.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The only time the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/MORTGAGE30US\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">average 30-year fixed mortgage rate<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;dipped this low in the past three decades was in 2020 and 2021. It\u2019s unlikely rates will return to this historical low anytime soon.&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/tradingeconomics.com\/united-states\/interest-rate?embed\/forecast\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Trading Economics<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;currently forecasts that the federal funds rate will drop to 3.25% by 2025, while the Federal Open Market Committee predicts a decline to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/fred.stlouisfed.org\/series\/FEDTARMD\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">3.1%<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;the same year. While this would impact mortgage rates significantly, it likely wouldn\u2019t result in a cheaper median national housing payment when compared to the median national rent payment.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Whether or not you wait needs to be an individual decision. If you\u2019re aiming for a market like Denver, where the homeownership premium is above 50%, and Redfin found only 0.1% of properties for which cash flow would be possible, it could make sense to wait, bolster your cash position, and see where things land. Alternatively, you could consider long-distance investing in other markets or change your investment strategy.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Desirable cities with a robust job market tend to attract <a href=\"https:\/\/visaguide.world\/digital-nomad-visa\/#what-is-a-digital-nomad\" target=\"_blank\" data-type=\"link\" data-id=\"https:\/\/visaguide.world\/digital-nomad-visa\/#what-is-a-digital-nomad\" rel=\"noreferrer noopener\">digital nomads<\/a> and traveling workers, so you might consider whether a medium-term rental strategy is viable. And while short-term rentals aren\u2019t getting the high occupancy rates that were common in 2021, there are still opportunities for investors to get significant returns in some mid-size cities with relatively low home values and plenty of cultural and outdoor activities, according to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.airdna.co\/blog\/best-places-to-invest-in-us-vacation-rentals-2023\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">AirDNA<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Can You Make It Work with Today\u2019s Mortgage Rates?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">For some investors, the long-term rental strategy is a natural fit for their lifestyle. And it\u2019s still possible to collect more in rent than you pay monthly to own and maintain a rental property. However, investors are facing more challenges. Finding the right property takes an extra dose of patience. The struggle is especially real for beginner investors, who may not have a large cash down payment or the track record to get alternative types of financing.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Depending on your financing options and the availability of cash flow properties in the markets you\u2019re interested in, you may be able to find great investments with today\u2019s mortgage rates, or you may choose to wait for relief. In your research, you might consider these additional metro areas, where at least 30% of properties have a higher estimated rent payment than a mortgage payment. Just be sure to take into account other factors that constitute a good investment.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-table is-style-regular\"><table class=\"has-fixed-layout\"><thead><tr><th>Market<\/th><th><strong>Median Monthly Mortgage Payment<\/strong><\/th><th><strong>Median Monthly Rent Payment<\/strong><\/th><th><strong>Premium (%) of Mortgage to Rent Cost<\/strong><\/th><th><strong>Premium ($) of Mortgage to Rent Cost<\/strong><\/th><th><strong>Share of Properties Cheaper to Rent<\/strong><\/th><\/tr><\/thead><tbody><tr><td>Pittsburgh, Pennsylvania<\/td><td>$1,648<\/td><td>$1,619<\/td><td>1.8%<\/td><td>$29<\/td><td>47.6%<\/td><\/tr><tr><td>West Palm Beach, Florida<\/td><td>$3,838<\/td><td>$3,771<\/td><td>1.8%<\/td><td>$68<\/td><td>46.0%<\/td><\/tr><tr><td>Fort Lauderdale, Florida<\/td><td>$3,321<\/td><td>$3,169<\/td><td>4.8%<\/td><td>$152<\/td><td>38.5%<\/td><\/tr><tr><td>San Antonio, Texas<\/td><td>$2,188<\/td><td>$2,086<\/td><td>4.9%<\/td><td>$102<\/td><td>38.0%<\/td><\/tr><tr><td>Chicago, Illinois<\/td><td>$2,436<\/td><td>$2,307<\/td><td>5.6%<\/td><td>$129<\/td><td>39.4%<\/td><\/tr><tr><td>Fort Worth, Texas<\/td><td>$2,542<\/td><td>$2,400<\/td><td>5.9%<\/td><td>$142<\/td><td>32.0%<\/td><\/tr><tr><td>Cincinnati, Ohio<\/td><td>$2,030<\/td><td>$1,910<\/td><td>6.2%<\/td><td>$119<\/td><td>39.6%<\/td><\/tr><tr><td>Warren, Michigan<\/td><td>$2,333<\/td><td>$2,177<\/td><td>7.2%<\/td><td>$156<\/td><td>37.2%<\/td><\/tr><tr><td>St. Louis, Missouri<\/td><td>$2,044<\/td><td>$1,880<\/td><td>8.7%<\/td><td>$164<\/td><td>37.9%<\/td><\/tr><tr><td>Kansas City, Missouri<\/td><td>$2,188<\/td><td>$1,996<\/td><td>9.6%<\/td><td>$192<\/td><td>32.2%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n    \n  <div id=\"visibility-group-block_8b158fa407f9e269b239e8a4aa522e57\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_01252db9b3ef3e67637400cd1a580a5b\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Step #1: Use Agent Finder to match with top <em><strong>investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n<div id=button-custom-event-block_de4079a73d9f55de2e407b7386383c40 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/agent\/match\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Agent Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/rents-exceed-housing-payments-in-just-four-markets&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find an Agent<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/Marketplace-Blog-Blocks-Agent-v3.png\" alt=\"investor friendly real estate agent\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/rents-exceed-housing-payments-in-just-four-markets&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>With rising mortgage rates, finding cash flow has only gotten harder. What is it about these four markets that you can cash flow?<\/p>\n","protected":false},"author":613615,"featured_media":153679,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7382],"tags":[],"class_list":["post-153678","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-rental-prices"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613615"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=153678"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153678\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/153679"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=153678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=153678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=153678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}