I'm looking into investing in areas with low price-to-rent ratios, like Metro-Detroit. I've asked a few PMs this question, but I don't get very good answers:
What is the fundamental reason that price-to-rent is so low?
Some answers I've gotten:
"Section 8 housing inflates rental rates"
"Tenants can't get approved for a mortgage"
"Tenants are uneducated"
Though all true, these reasons seem to only partially answer the question. Can someone provide some insight?
@Daniel Lehrman In my area I believe it is job related. I live in Nederland Tx and the majority of well paying jobs are jobs that attract transient workforce. These jobs are 1-5 year jobs for refineries that pay really well. This allows the workforce to be able to afford 1000-1400 per month for a house that I might get for 50k - 70k. The good pay mixed with short term job uncertainty, good schools, and lack of education fosters a rental market of 1.5%-2% rule. I actually have a property that is a 2.7% rule currently. Granted that is a triplex.
I think you're going to find it extremely hard and unrewarding to reduce the entire economics of an area into one fundamental principle.
I invest in a low price-to-rent ratio area, and the reasons it's this way are numerous and probably beyond the scope of my actual understanding. for instance:
I think people in this area buy less often than national average
there has been zero inflation in this area, but rents have increased
It's a military base so
the transient nature keeps used home sales high
income isn't that great
the subsidy of living expenses given to military members keeps ALL market rents high
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