{"id":5648,"date":"2024-01-16T07:10:00","date_gmt":"2024-01-16T11:10:00","guid":{"rendered":"https:\/\/propertyonion.com\/education\/?p=5648"},"modified":"2024-01-08T16:13:32","modified_gmt":"2024-01-08T20:13:32","slug":"its-better-to-rent-than-buy-in-columbus-heres-why","status":"publish","type":"post","link":"https:\/\/propertyonion.com\/education\/its-better-to-rent-than-buy-in-columbus-heres-why\/","title":{"rendered":"It\u2019s Better to Rent Than Buy in Columbus, Here’s Why"},"content":{"rendered":"\n

Smart real estate investors in Ohio recognize the importance of analyzing data and trends. Recently, various sources have suggested<\/a> that prospective home buyers in Columbus might be better off renting rather than buying a home. What does this mean for those looking to acquire rental properties in the Columbus region? <\/p>\n\n\n\n

At a glance, most of the common indicators show how the Columbus, Ohio, real estate market has demonstrated stability before, during, and after the COVID pandemic. Interestingly, data from Redfin illustrated that Columbus is among the markets where renting a comparable property is more affordable compared to buying it \u2014 in roughly 70% of cases. While this might be expected in major housing markets, such as Los Angeles or San Francisco, it would seem less likely in most of Ohio\u2019s markets. <\/p>\n\n\n\n

Here, we will review how Columbus Is still a viable environment for investors despite the higher costs associated with purchasing real estate. <\/p>\n\n\n\n

The ratio is valuable in determining a region\u2019s affordability and a low ratio indicates that prospective home buyers are more likely to rent.<\/p><\/blockquote>\n\n\n\n

Understanding the Price-to-Rent Ratio <\/h3>\n\n\n\n

One of the useful financial metrics, specifically for those involved in rental property investing<\/a>, is the Price-to-Rent ratio<\/a>. This simple calculation is determined by dividing the price of the property by your anticipated, annual gross rental income.  <\/p>\n\n\n\n

In most cases, this calculation is used to evaluate<\/a> the \u201cbig picture\u201d of a given market, such as based on comparing median home value and median rent, rather than an individual property. <\/p>\n\n\n\n

Consider this example using some estimates from Zillow for Columbus: <\/p>\n\n\n\n

Price-to-Rent Ratio = Median Property (Home) Value \u00f7 Median Annual Rent <\/p>\n\n\n\n

$239,781 \/ $17,400 ($1,450\/mo. X 12 mos.) = 13.78 <\/p>\n\n\n\n

As a general rule of thumb, markets with ratios below 15 are profitable for rental property investors. <\/p>\n\n\n\n

The ratio is valuable in determining a region\u2019s affordability and a low ratio indicates that prospective home buyers are more likely to rent. Further, a higher Price-to-Rent Ratio indicates that investors will likely struggle to generate much cash flow after covering operating costs. <\/p>\n\n\n\n

Owner\u2019s Equivalent Rent (OER) <\/h3>\n\n\n\n

In the Consumer Price Index (CPI) of the U.S. Bureau of Labor Statistics (BLS), the Owner\u2019s Equivalent Rent (OER) is used for gauging a region\u2019s real estate values. The OER is the amount of rent that is equivalent to the monthly ownership expenses. <\/p>\n\n\n\n

In today\u2019s economic environment, CPI is getting significantly more attention, as it is used for measuring inflation. When OER is high, prospective home buyers will generally find that ownership is more affordable compared to renting. <\/p>\n\n\n\n

Real estate investors should also assess OER in their decision-making. Rental properties located in markets with higher OER are generally more lucrative. <\/p>\n\n\n\n

Recent data suggests<\/a> that monthly rent prices are lower compared to monthly mortgage prices in approximately 72% of Columbus\u2019 properties; however, investors should always evaluate specific properties independently \u2014 not rely on overall market data. <\/p>\n\n\n\n

Younger workers who view their current employment as unstable or potentially short-term are typically better off renting. <\/p><\/blockquote>\n\n\n\n

Understanding Buy or Rent Decisions<\/h3>\n\n\n\n

There are several \u201cmoving parts\u201d involved in whether residents are choosing to rent or buy. First, we must consider that current rates for a 30-year fixed-rate mortgage are roughly 7.5%. Looking at historical<\/a> data, the last time these rates were over 7% was 2002. <\/p>\n\n\n\n

According to Money.com, new mortgage applications have reached a 28-year low and sales have not been this slow since<\/a> 2008. The bottom line is that prospective home buyers are facing a lack of affordability. <\/p>\n\n\n\n

What is influencing the buy vs rent choice among younger Americans? Many younger, working people consider whether to buy or rent their home as they begin their careers and assess their financial position. In many cases, these professionals have accrued substantial debt in the form of student loans and credit card balances and lack much savings. <\/p>\n\n\n\n

Those who are considering a home purchase must account for several other expenses, such as a down payment, HOA or co-op fees, homeowner\u2019s insurance, mortgage insurance (PMI), property taxes<\/a>, utilities, and repairs and maintenance. After calculating the overall culmination of home-related expenses, young people also must assess their short to mid-range plans and goals. <\/p>\n\n\n\n

Traditionally, those who anticipate relocating within three years are discouraged from buying. Younger workers who view their current employment as unstable or potentially short-term are typically better off renting. <\/p>\n\n\n\n

Regardless of choosing to rent or buy, Ohioans are residing in a state that currently has an estimated<\/a> shortage of 250,000 homes. <\/p>\n\n\n\n

Why Columbus Remains a Solid Market for Investors<\/h3>\n\n\n\n

There are several reasons why Columbus is likely a good market for owning rental properties. <\/p>\n\n\n\n