Why is the rent to price ratio inconsistent in similar markets?
What does it say about a particular market when the rent to price ratio is higher for single family homes?
I’m in northern California and am looking at several markets on the outskirts of the bay area.
One of them is Tracy. In Tracy, houses that sell for 140K, generally get about 1300 a month in rent. These are retail prices and there are tons of houses that sell and rent for these prices. Yes, I know that these are not good deals, but I’m using off-the-shelf prices for the purposes of this question.
Another market is Antioch. In Antioch, houses that sell for 140K rent for about 1450 a month. Again, there are many homes that sell and rent for these rates.
What I want to know is what does it mean that houses can be had for the same amount, but rent for more in two markets that look and feel very similar? Does this mean that one market is declining? Is this an indicator of something I should know about?
It seems to me that if one place, Antioch, had superior traits, then the rents would be higher, but so would the prices. Why is this not the case?
There are a couple of other markets around the bay area that also seem equivalent but, have varying rent to price ratios. What do I not understand here?
Thanks.
The useless and obvious answer is that there is a greater demand for rents in Antioch. The rental market is more 'liquid' than the owning market. Price sensitivity is high--increase / decrease rent by 10% and you are likely to greatly impact how quick you can rent out a place. The real estate owing market has undergone so many changes that it is likely that many markets are misvalued--both high and low. Google 'big Mac index' for more pricing theory. The BMI is used to determine which currencies are under/over
valued. My guess is that Antioch purchase prices will go up or Tracys will go down. Of course, there could be an error in your math. I am curious why you think the Tracy investment would be bad (140k / 1.3k) My math shows a gross return of 17.5% ($35kdown, $5k closing, 0 repairs, not including maintenance, vacancy). Yes I left out important things for simplicity, but 17.5% ROI leaves lots if wiggle room.
supply and demand! My market seems to be saturated with apartments.... SFR tend to do be a much hotter commodity....
I still can't believe how many gigantic apartment complexes this town of 50K can support.... Makes no sense imo
