Common wisdom holds that it’s better to buy a house rather than rent whenever possible, but in some markets that have runaway home prices it makes more financial sense to rent. In yet other markets, it’s also good to rent simply because it’s cheap to do so. Analysts at Zillow ran the numbers to find the best cities in which to rent and came up with some surprising locations at the top of its list. A few of the best places to rent rather than buy include Knoxville, Tennessee, St. Louis and El Paso, Texas. For more on this continue reading the following article from TheStreet.
The median U.S. residential rent has risen about 2% over the past year as America’s long-suffering housing market stabilized, but here are five cities where you can still find great deals on apartments and other rentals.
"Most of these cities have relatively low rents that are also falling on a year-over-year basis," says economist Svenja Gudell of market tracker Zillow.com (Z), which recently ranked the communities at the top of its Rental Bang for Your Buck study.
Zillow, which is famous for estimating the current market value of almost U.S. every home (even those not for sale), analyzed rental conditions in America’s most-populous cities based on four factors.
First, the site looked at median asking prices per square foot for all rentals advertised on Zillow.com.
Next, researchers estimated the rental value of a typical residence within a given city (including owner-occupied homes not up for rent), as well as how much these projected values have changed over the past year.
Lastly, the site calculated each community’s "break-even" period: how many years a tenant could rent in a given city before buying a home made more financial sense.
Gudell says some communities at the top of Zillow’s list got there by avoiding the worst of the U.S. housing bust and foreclosure crisis. That helped cities avoid swarms of residents losing homes to foreclosure and moving into apartments, driving up local rents.
"In [hard-hit] cities like Miami and Las Vegas, you had many foreclosures that forced homeowners out of their homes and into rentals because they didn’t have any other choice," Gudell says.
But the expert adds that while Zillow’s rankings can show renters where to find great deals, investors might still want to look elsewhere, because communities at or near the top of the list generally have rents that are low and declining, a bad combination for would-be landlords.
"I think that as an investor, you’ll probably have a slightly different twist on the study’s results," Gudell says.
Click below for a rundown of the five U.S. cities that Zillow found offer tenants the best bang for their buck. (The site ranked all cities on a weighted index of zero to 100, with 100 equaling first place in all data points measured.)
All figures are as of Aug. 31 and refer just to residences within a city proper, not to any properties in surrounding suburbs. Dollar figures refer to the Zillow Rental Index, an estimate of how much a typical property (even those not for rent) would fetch on the open market.
Fifth-best market for renters: Knoxville, Tenn.
Bang for Your Buck score: 67.5 (out of a possible 100)
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There’s not much to knock about Knoxville’s rental market.
The typical property in the University of Tennessee’s hometown rents for only around $893 a month — the 14th-lowest level among America’s 100 largest cities — and rental values dropped by about 4% over the past year. That’s the third-biggest decline for any major U.S. community, and far lower than the 1.9% average increase recorded nationwide.
The Marble City also boasts rentals that list for a median of just 76 cents per square foot, well below the $1.02 typical nationwide.
Gudell attributes Knoxville’s renter-friendly conditions to the fact that the 179,000-population municipality didn’t have as bad a housing bust and foreclosure crisis in recent years as some U.S. locales saw.
"There weren’t as many Knoxville homeowners displaced by foreclosure," she says.
In fact, Knoxville’s only negative for renters is a relatively short estimated break-even period of 2.45 years, somewhat below the 3.1-year U.S. average. "If you know you want to stay in Knoxville for more than 2.5 years, you’re probably better off buying," Gudell says.
Fourth-best market for renters: El Paso, Texas
Bang for Your Buck score: 68.6
Down in the West Texas town of El Paso, you’ll fall in love with the cheap rental rates.
This 673,000-person community has seen average rental values fall by an estimated 7.12% over the past year — the biggest drop in any major U.S. city. That’s helped drive the typical El Paso property’s value on the rental market down to just $991 a month, the 21st-lowest level among America’s big cities.
El Paso’s median advertised rents also run just 74 cents per square foot, or more than 25% below the U.S. norm.
But like Knoxville, El Paso has a short projected break-even point: just 2.44 years. Stay in Sun City longer than that and buying a place will make more sense than renting.
Third-best market for renters: Virginia Beach, Va.
Bang for Your Buck score: 68.7
This oceanfront community popular with vacationers has high average rental values ($1,528 a month), but still manages to come close to the top Zillow’s Rental Bang for Your Buck list because of other tenant-friendly factors.
For instance, high home prices mean it takes a long 5.12 years to break even buying a place in 447,000-population Virginia Beach instead of renting.
Tenants in Virginia’s most-populous city have also enjoyed a 0.13% drop in average rental values over the past year, while the typical unit carries a below-average advertised asking rent of 96 cents per square foot.
Second-best market for renters: Fayetteville, N.C.
Bang for Your Buck score: 69.9
The home of Fort Bragg has plenty to boast about when it comes to affordable rentals.
For instance, Fayetteville is in a three-way tie with Memphis, Tenn., and Birmingham, Ala., in offering the fifth-lowest advertised rents among major U.S. cities. The typical rental there lists for just 65 cents per square foot.
Fayetteville’s median rental values have also dropped over the past year by 1.51%, the seventh-biggest decline among big cities.
All told, the typical residence in this 206,000-person city has a rental value of just $848 a month. That’s the 10th-lowest level for any major U.S. city and partly offsets Fayetteville’s relatively short estimated break-even period of 2.71 years.
Best market for renters: St. Louis
Bang for Your Buck score: 71.3
They may have lost the 2013 World Series, but they’re still No. 1 when it comes to rentals.
St. Louis takes first place in Zillow’s Rental Bang for Your Buck study thanks to a better-than-average performance on almost every metric that the website analyzed.
For openers, rental values in this 319,000-population city dropped an estimated 5.15% over the past year — the second-biggest decline among major U.S. communities. That’s helped drive down average St. Louis rental values to a mere $829 a month, the seventh-lowest level for any big city in America.
Landlords are also advertising the typical St. Louis rental at just 85 cents per square foot, well below the U.S. average.
"St. Louis looks relatively good across the board," Gudell says.
The only drawback renters face is the fact that you can break even buying a St. Louis home instead of renting in just 2.76 years.
Gudell attributes the short break-even period to St. Louis homes selling for relatively low prices. "The [for-sale] market hasn’t seen a strong recovery," she says.
This article was republished with permission from TheStreet.