Real estate investing is a great way to make money – needless to say… However, this doesn’t mean that every real estate investment that we make is a good one. There are many factors to consider before buying an investment property that will provide us with positive cash flow and make us rich. One of these factors is location.
If you are considering the thought of entering the exciting world of real estate investing in the summer of 2018, you must be wondering about the best places to invest in real estate at the moment. Then, you’ve come to the right place as here we show you the best Florida real estate markets to buy a rental property in 2018, based on the price to rent ratio.
What Is the Price to Rent Ratio?
If you are a beginner real estate investor, you might not be an expert on all related terminology such as price to rent ratio. Actually, that’s a real estate concept which is very relevant to renters (tenants) as well as homebuyers but which also is very important for real estate investors as it can point out to the markets with the highest rental demand.
Unlike some real estate concepts, the price to rent ratio is a very straightforward one: It is simply the average property price in a given real estate market over the average annual rent (from the point of view of the real estate investor, the annual rent is the annual rental income).
Price to Rent Ratio Formula:
Price to Rent Ratio = Average Property Price/(Average Monthly Rent x 12)
Price to Rent Ratio Example:
According to Mashvisor data, the average property price in Orlando, FL was $239,000 in April 2018, while the average monthly rent was $1,410.
How to calculate the price to rent ratio in Orlando, FL?
Just use the formula above!
Price to Rent Ratio = $239,000/($1,410 x 12) = 14
So, here you have it: The price to rent ratio in Orlando, FL in April 2018 according to Mashvisor data was 14.
What Does the Price to Rent Ratio Show?
So far so good… But what does this number 14 imply for the Orlando real estate market? Should you buy an investment property there?
First of all, let’s consider the price to rent ratio from the perspective of tenants (or renters) and homebuyers:
A price to rent ratio of:
- 0-15 means that it is better to buy a home than to rent a property;
- 16-20 means that it is most likely better to rent a property than to buy a home;
- 21+ means that it is definitely better to rent a property than to buy a home.
The logic is simple: Housing markets with high price to rent ratios are too expensive for ordinary people to buy homes in, so it’s financially more reasonable for them to rent a property there.
Now, the opposite is true for real estate investors. I don’t mean to say that investors should necessarily target expensive housing markets in order to buy positive cash flow investment properties and make the best real estate investments. What I mean to say is that markets with a high price to rent ratio exhibit a very high rental demand as people just find them too expensive to buy a home.
To sum up: Real estate markets with high price to rent ratios are good news for real estate investors!
What Are the Florida Real Estate Markets with the Highest Price to Rent Ratio?
Florida has always been among the best places to buy an investment property – whether to use as a traditional rental (long-term) or an Airbnb rental (short-term). The warm weather, the endless beaches, the many attractions, and more attract numerous people to move to Florida to live there or to visit for a short stay each and every year. 2018 is no exception.
However, the Florida real estate market is so vast that you need to know where exactly to buy an investment property in it. If you are after strong rental demand for traditional rentals – and you should be! – then start out with the following housing markets with the highest price to rent ratio in 2018 (all calculations are based on Mashvisor data):
1. Miami Beach
- Price to Rent Ratio: 60
- Average Property Price: $1,841,000
- Average Monthly Rent: $2,280
2. Miami
- Price to Rent Ratio: 29
- Average Property Price: $616,000
- Average Monthly Rent: $1,740
3. Naples
- Price to Rent Ratio: 27
- Average Property Price: $562,000
- Average Monthly Rent: $1,550
- Price to Rent Ratio: 26
- Average Property Price: $580,000
- Average Monthly Rent: $1,760
5. Panama City Beach
- Price to Rent Ratio: 19
- Average Property Price: $326,000
- Average Monthly Rent: $1,400
6. Fort Myers
- Price to Rent Ratio: 19
- Average Property Price: $279,000
- Average Monthly Rent: $1,160
7. Cape Coral
- Price to Rent Ratio: 18
- Average Property Price: $250,000
- Average Monthly Rent: $1,100
8. Tampa
- Price to Rent Ratio: 16
- Average Property Price: $264,000
- Average Monthly Rent: $1,340
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The world of real estate investing is so diverse that you never run out of options. Buying a rental property in the Florida real estate market is a great option at all times. Now you know which housing markets guarantee you high demand for your traditional rental property. The great thing is that some of these markets are quite affordable, such as Cape Coral, Tampa, and Fort Myers. If, on the other hand, you are considering luxury rentals, look into the Miami Beach real estate market for your next rental property.
The world of real estate investing has become incredibly competitive, and only those equipped with the best real estate investment tools will succeed. Now that you know the best places for buying an investment property in the Florida real estate market for 2018, based on the price to rent ratio, make sure to use Mashvisor’s investment property calculator and heatmap analysis to find the best real estate investments in these markets. Remember to look for high return on investment in the form of both high cap rate and high cash on cash return.
If you, on the other hand, think that the California real estate market might be a better investment choice for you, find out the housing markets with the highest rent to price ratio there.
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