October 30, 2014

Estimating Rental Investment Returns per Major Metropolitain Areas

The kind of return you can get from a rental property varies a lot based on the local real estate market.   I figured I could use average rents and median home values to give a crude estimate of the approximate rental returns for a given area.  This isn't precise though since the median home will have different characteristics than the average rental.   The home is likely to be larger and have more amenities, etc than a average rental.   But for my purposes of giving a rough gauge of the returns for a rental market, I think it is good enough.


To give a single data point on how the table below might compare to actual property values and rents I decided to look at Vegas.  I pulled up Zillow and searched for houses in Las Vegas from $100-$125k and found a house for $105k with 3 bed/3bath.  Zillow estimates the rent would be $1020.    I then checked Craigslist and searched for 3 bed rentals under $1200 and found a couple houses with 3 beds for $1000 and $1100.    These figures compare to the median home values of $124k and average rent of $957 in the table.  Also of course what I'm looking at on Zillow and Craigslist is in 2014 versus the data below in the tables being from 2011. 

The table below lists the median home values in $1000, monthly rental costs and then the return rate calculated based on simply 12 months of rent / median house costs.   All the figures below are from 2011 as thats the latest I found all the data available.



Metro Home Rent Return
Atlanta-Sandy Springs-Marietta, GA 98.6 914 11.1%
Austin-Round Rock, TX 193.1 930 5.8%
Baltimore-Towson, MD 230.0 1073 5.6%
Birmingham-Hoover, AL 139.8 753 6.5%
Boston-Cambridge-Quincy, MA-NH 346.2 1163 4.0%
Buffalo-Niagara Falls, NY 119.2 682 6.9%
Charlotte-Gastonia-Concord, NC-SC 148.9 820 6.6%
Chicago-Naperville-Joliet, IL 176.5 928 6.3%
Cincinnati-Middletown, OH-KY-IN 122.3 711 7.0%
Cleveland-Elyria-Mentor, OH 105.1 712 8.1%
Columbus, OH 123.9 776 7.5%
Dallas-Fort Worth-Arlington, TX 148.9 863 7.0%
Denver-Aurora, CO 231.4 920 4.8%
Detroit-Warren-Livonia, MI 53.8 805 18.0%
Hartford-West Hartford-East Hartford, CT 227.6 962 5.1%
Houston-Baytown-Sugar Land, TX 155.7 849 6.5%
Indianapolis, IN 123.9 764 7.4%
Jacksonville, FL 123.6 940 9.1%
Kansas City, MO-KS 133.2 798 7.2%
Las Vegas-Paradise, NV 124.7 957 9.2%
Los Angeles-Long Beach-Santa Ana, CA  307.7 1214 4.7%
Louisville, KY-IN 130.4 696 6.4%
Memphis, TN-MS-AR 112.3 805 8.6%
Miami-Fort Lauderdale-Miami Beach, FL 181.1 1078 7.1%
Milwaukee-Waukesha-West Allis, WI 185.2 785 5.1%
Minneapolis-St. Paul-Bloomington, MN-WI 154.7 858 6.7%
Nashville-Davidson--Murfreesboro, TN 151.9 800 6.3%
New Orleans-Metairie-Kenner, LA 153.0 886 6.9%
New York-Northern New Jersey-Long Island, NY-NJ-PA 378.7 1187 3.8%
Oklahoma City, OK 141.6 731 6.2%
Orlando, FL 124.9 970 9.3%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 210.1 957 5.5%
Phoenix-Mesa-Scottsdale, AZ 115.5 893 9.3%
Portland-Vancouver-Beaverton, OR-WA 219.5 906 5.0%
Providence-New Bedford-Fall River, RI-MA 217.2 849 4.7%
Raleigh-Cary, NC 185.2 828 5.4%
Richmond, VA 187.1 925 5.9%
Riverside-San Bernardino-Ontario, CA 172.3 1076 7.5%
Sacramento--Arden-Arcade--Roseville, CA 166.1 1004 7.3%
Saint Louis, MO-IL 121.8 776 7.6%
Salt Lake City, UT  182.2 859 5.7%
San Antonio, TX 152.5 907 7.1%
San Diego-Carlsbad-San Marcos, CA  370.3 1237 4.0%
San Francisco-Oakland-Fremont, CA  483.4 1345 3.3%
San Jose-Sunnyvale-Santa Clara, CA 570.0 1460 3.1%
Seattle-Tacoma-Bellevue, WA 285.0 1037 4.4%
Tampa-St. Petersburg-Clearwater, FL 127.8 906 8.5%
Virginia Beach-Norfolk-Newport News, VA-NC 182.9 1053 6.9%
Washington-Arlington-Alexandria, DC-VA-MD-WV 325.4 1391 5.1%


The markets with the 10 best returns :

Metro Home Rent Return
Detroit-Warren-Livonia, MI 53.8 805 18.0%
Atlanta-Sandy Springs-Marietta, GA 98.6 914 11.1%
Orlando, FL 124.9 970 9.3%
Phoenix-Mesa-Scottsdale, AZ 115.5 893 9.3%
Las Vegas-Paradise, NV 124.7 957 9.2%
Jacksonville, FL 123.6 940 9.1%
Memphis, TN-MS-AR 112.3 805 8.6%
Tampa-St. Petersburg-Clearwater, FL 127.8 906 8.5%
Cleveland-Elyria-Mentor, OH 105.1 712 8.1%
Saint Louis, MO-IL 121.8 776 7.6%

And the 10 worst:

Metro Home Rent Return
San Jose-Sunnyvale-Santa Clara, CA 570.0 1460 3.1%
San Francisco-Oakland-Fremont, CA  483.4 1345 3.3%
New York-Northern New Jersey-Long Island, NY-NJ-PA 378.7 1187 3.8%
San Diego-Carlsbad-San Marcos, CA  370.3 1237 4.0%
Boston-Cambridge-Quincy, MA-NH 346.2 1163 4.0%
Seattle-Tacoma-Bellevue, WA 285.0 1037 4.4%
Providence-New Bedford-Fall River, RI-MA 217.2 849 4.7%
Los Angeles-Long Beach-Santa Ana, CA  307.7 1214 4.7%
Denver-Aurora, CO 231.4 920 4.8%
Portland-Vancouver-Beaverton, OR-WA 219.5 906 5.0%


I was going to add in the property tax rates and figure the return after accounting for average property taxes.  However I can't account for the impact of homestead exemptions so that would make that calculation kind of worthless. 

This does not account for the expenses which vary as well.  
Sources of information :
Rent  rates from the Census
Median home prices from the Realtor association

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