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Real estate investors looking for a strong rental market would do well to consider markets with a high price-to-rent (PTR) ratio. The higher the ratio, the higher the demand for rental property. A PTR ratio is useful in determining whether renting or buying a home is a more affordable option for residents of a given area.

Commercial real estate investments platform DiversyFund calculated the 15 cities with the highest PTR ratio, using May 2021 data from Zillow. The PTR ratio is calculated by dividing the median sale price of homes by the median annual rent of homes in a city. The higher the ratio, the better it is to rent a house rather than buy a house in that city.

A low PTR ratio indicates that the costs to rent are similar to the cost to buy property, meaning more renters may make the decision to become homeowners rather than continuing to rent a similar home. A high PTR ratio indicates the annual cost of renting a property is considerably less than what it would cost to own. The ratio doesn’t speak to the overall affordability of a property in a particular city, but to the relative costs of renting compared to owning.

Keep reading to discover which markets have the highest PTR ratios in the country and how that might affect real estate investors.

  • #15. Sacramento, California

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    – Price-to-rent ratio: 21.53
    – Median sale price: $513,869
    – Median annual rent: $23,868 ($1,989 per month)
    – For-sale home inventory: 4,997

    California is an expensive state in which to rent a home, second only to Hawaii. Cities in the Golden State occupy six slots on this list, so it’s worth considering investing in property in cities with high PTR ratios such as Sacramento. In the past year, home values in the metro area have climbed by more than 24.5%. If that trend continues, investment in the Sacramento real estate market could pay off in a big way.

  • #14. Ventura, California

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    – Price-to-rent ratio: 21.95
    – Median sale price: $733,186
    – Median annual rent: $33,408 ($2,784 per month)
    – For-sale home inventory: 1,442

    Ventura is home to Patagonia’s headquarters, which makes sense considering the area is perfect for outdoor activities ranging from surfing and kayaking to golf and bird-watching. This oceanfront metro area includes Santa Barbara and the Anacapa Islands and has a high PTR ratio and above-average property prices compared to California and the United States. Home values in Ventura have increased 24.2% in the past year.

  • #13. Ogden, Utah

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    – Price-to-rent ratio: 22.07
    – Median sale price: $381,854
    – Median annual rent: $17,304 ($1,442 per month)
    – For-sale home inventory: 1,392

    Ogden is located about 35 miles north of Salt Lake City and is known as a gateway town to the mountains within easy reach of ski resorts and bike trails. A century ago, Ogden was known for being the transfer point from the Central Pacific to the Union Pacific railroads. Today, Ogden’s Historic 25th Street is full of boutiques and cafes. After prohibition, it was taken over by the mob and has a fascinating past of bootlegger tunnels and organized crime.

  • #12. Boise City, Idaho

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    – Price-to-rent ratio: 22.90
    – Median sale price: $445,117
    – Median annual rent: $19,440 ($1,620 per month)
    – For-sale home inventory: 2,337

    Typically a PTR ratio of 21 or higher is considered good for real estate investors who want to ensure cash flow properties always have a tenant. Boise is the largest city in Idaho, which is the second-fastest-growing state, according to the 2020 census. Boise’s population is currently at an all-time high. Rent prices have increased 11% in the past year, and only 1.4% of rental properties are currently vacant.

  • #11. Fort Collins, Colorado

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    – Median sale price: $448,331
    – Median annual rent: $19,104 ($1,592 per month)
    – For-sale home inventory: 2,141

    Fort Collins is home to Colorado State University and its more than 33,000 students, many of whom rent houses or apartments in town. Home prices have risen by more than $66,000 in the past year. With an influx in renters during the coronavirus, rent prices have been driven up by the lack of available properties. With a perpetual source of tenants, Fort Collins is an ideal city for real estate investment.

  • #10. Austin, Texas

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    – Price-to-rent ratio: 23.85
    – Median sale price: $446,464
    – Median annual rent: $18,720 ($1,560 per month)
    – For-sale home inventory: 7,759

    Austin is home to more than 960,000 people and has grown 21% since the last census. Rents in the state capital are rebounding after a pandemic-induced slump. The mean rent is at an all-time high, compared to a mean rent of $1,278 in July 2020. Austin is one of the hottest real estate markets in the country, with pricing for median housing increasing more than 30% since June 2020.

  • #9. Denver

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    – Price-to-rent ratio: 24.24
    – Median sale price: $510,429
    – Median annual rent: $21,060 ($1,755 per month)
    – For-sale home inventory: 7,336

    Denver has had a booming real estate market—and while it’s still a seller’s market, there are signs that it’s slowing down to a more manageable pace. The median closing price in July was up 20% compared to last July. Inventory of houses has increased somewhat since June, though not enough to satisfy demand. Denver has a highly educated workforce and tax incentives designed to lure more tech-heavy companies to the area.

  • #8. Salt Lake City

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    – Price-to-rent ratio: 24.65
    – Median sale price: $436,962
    – Median annual rent: $17,724 ($1,477 per month)
    – For-sale home inventory: 2,556

    Utah is the most youthful state in the nation, its population ranking first with a median age of 30.7. As younger people are more likely to rent than buy, Utah may be a good place to purchase an investment property. Salt Lake City is on Bloomberg’s list of places to buy a rental property, citing the 15% increase in home prices. While that might seem like a lot, it’s less than other cities that West Coast transplants are flocking to with high PTR ratios such as Portland, Oregon, at 17.8%, or Denver at 22%.

  • #7. Portland, Oregon

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    – Price-to-rent ratio: 24.72
    – Median sale price: $478,823
    – Median annual rent: $19,368 ($1,614 per month)
    – For-sale home inventory: 7,011

    Oregon has a 9% deficit of available housing, according to Freddie Mac. Put in perspective, the lack of housing in Oregon is second only to Washington D.C., which has a 9.55% deficit. Portland’s high rents and high PTR ratio make it an attractive place for real estate investors looking for long-term rental properties. The pandemic-induced eviction moratorium lifted at the end of July may help with landlords’ cash flow.

  • #6. Provo, Utah

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    – Price-to-rent ratio: 25.00
    – Median sale price: $430,141
    – Median annual rent: $17,208 ($1,434 per month)
    – For-sale home inventory: 1,650

    Brigham Young University is located in Provo and has an entrepreneurial spirit as evidenced by the number of tech startups in town. In 2019, Provo had a very low vacancy rate of 4%, down from a peak of 7.65% in 2005. This suggests that landlords typically don’t struggle to find tenants, which is certainly aided by the student population. There are more renters than owner-occupiers in Provo, making this an appealing market for investment.

  • #5. San Diego

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    – Price-to-rent ratio: 25.75
    – Median sale price: $723,010
    – Median annual rent: $28,080 ($2,340 per month)
    – For-sale home inventory: 5,999

    While average home prices in this Southern California real estate hotspot are high, investment can pay off for those who buy in San Diego.

    The top neighborhoods for real estate investment include Ridgeview-Webster, Encanto, Nestor, and Emerald Hills, according to Mashvisor. California’s 2020 rent control law limits rent increases to 5% plus inflation annually. However, as home prices shot up 17% between April 2020 and April 2021, and with no indication of demand decreasing, buying in San Diego shows signs of being a great investment.

  • #4. Seattle

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    – Price-to-rent ratio: 26.88
    – Median sale price: $616,198
    – Median annual rent: $22,920 ($1,910 per month)
    – For-sale home inventory: 9,389

    Seattle homes have increased in value by 14.2% in the past year, according to Zillow. The housing market in Seattle is notoriously cutthroat. Investors will be pleased to note that rental prices have risen to 5% below the rates before the coronavirus hit the country, which caused rentals to dip 22%.

    The trend of Seattle residents increasingly being more likely to rent than to buy is good news for real estate investors.

  • #3. Los Angeles-Long Beach-Anaheim, California

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    – Price-to-rent ratio: 27.31
    – Median sale price: $799,262
    – Median annual rent: $29,268 ($2,439 per month)
    – For-sale home inventory: 20,734

    The COVID-19 pandemic led to California’s first population decline for the nation’s most populous state. That doesn’t mean real estate investment isn’t still a good bet in the Golden State, however. Rental prices in coastal cities like Los Angeles are high, as they are for the entire state—Californians pay the highest rents and largest percentage of their income to rent in the country. Zillow reports an 18.7% increase in Los Angeles home values over the past year.

  • #2. San Francisco

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    – Price-to-rent ratio: 29.38
    – Median sale price: $1,016,642
    – Median annual rent: $34,608 ($2,884 per month)
    – For-sale home inventory: 8,146

    Silicon Valley’s tech startup money and red-hot market have ensured the most expensive housing market in the country continues to rise. While inventory is increasing, rents in San Francisco remain lower than they were a year ago.

    The San Francisco Planning Department estimates that 65% of households rent in the city. The steep rental prices and high PTR ratio indicate that it’s still a lucrative market for smart investors.

  • #1. San Jose, California

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    – Price-to-rent ratio: 36.44
    – Median sale price: $1,244,540
    – Median annual rent: $34,152 ($2,846 per month)
    – For-sale home inventory: 3,124

    The city with the highest PTR ratio in the country is San Jose, located on the southern edge of San Francisco Bay and the third-largest city in California. The Silicon Valley hub is home to numerous tech firm headquarters, including Cisco Systems, Samsung, Hewlett Packard, and Zoom, among others. Home values have skyrocketed 21.8% in the past year. Roughly 45% of the population rents, making this an appealing market for investors.