Low Price to Rent: Why do people rent?

2 Replies

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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