Author Topic: what explains the differences in price to rent ratios around the country  (Read 1385 times)

rob in cal

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    I'm amazed at the tremendous differences between the ratio of rent to home purchase price in different parts of the US.   In Indiana it seems possible to buy a house for around 120k and rent it out for around 1k a month, or a little higher.  Such a ratio would be impossible in much of California or much of the east coast.  Why on earth would anyone with any fiscal stability rent a home in Indiana when buying it would lead to significantly lower monthly payments?  One would think that there would be hordes of former renters buying up all possible available real estate in these areas so home prices would go up.  Or landlords would have a tough time finding good tenants, because most good tenants would become owners real soon, and the only tenants  left would be economically marginal ones who can't afford the modest home mortgages possible in these areas.  It almost seems that places like Indiana, Oklahoma, Kansas etc are too good to be true landlord heaven states, which theoretically should be crawling with thousands of mustachians out there hoping to establish their mini-empires of 10-15% real rate of returns due to these nice ratios. 
    Anyway, I'd like to hear from people about their experiences in these real estate sweet spots and about how they feel they come about.

iamlindoro

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For the record, those states *are* crawling with thousands of landlords looking to establish mini-empires.  Thousands and thousands.  :)

You've got to consider that the average person doesn't really have their shit together.  Either they don't have good enough credit to be able to get a loan, or (and this is probably a great many of them) they can't piece together a downpayment.  Life circumstances differ greatly too-- some people know they won't live in the area forever and so don't want to buy.  Some people prefer to have a landlord handle the maintenance and capital expenses.  On that note, remember that just because your mortgage would be lower than you rent doesn't mean that your expenses would be-- you're taking on the responsibility of paying for insurance, property taxes, repairs, improvements, etc, all out of your own pocket. 

TL;DR: Whether by choice or circumstance, there will always be a large and ready rental population, especially in second and third tier cities.

arebelspy

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+1 to everything lindoro said.

Most people can't get together $500, let alone a $20k down payment.

And there are lots of small time landlords out there, and larger ones.  Many more houses are for rent out there than places with a higher ratio (that tend to have apartments for rent, but less houses for rent--not always, but on average).

It's just a supply/demand thing, overall.
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