For decades, people have wondered whether it is better to rent a house or buy it. An easier question to consider is: if you buy a house and rent it out, which city historically gives the highest rental income per dollar of house cost? The green column in the table provides one way to see this.
The comparison between cities compares each city to San Jose; thus, San Jose has a value of “1.00”. The actual value is based on comparing each city’s median sales price and monthly median rental price (reported by Zumper) to San Jose. The first column after the city name is the City sales price divided by the San Jose sales price (the city-to-SJ price ratio). The second column after the city name is the City rental price divided by the San Jose rental price (the city-to-SJ rent ratio). The third column after the City name is the second column (city-to-SJ rent ratio) divided by the first column (city-to-SJ price ratio), thus giving a rental return vs price comparison between the city and San Jose. A value above one means that San Jose has a better rent-to-price ratio than the city. A value below one means the city has a worse rent-to-price ratio than San Jose. For example, for Palo Alto, the third column shows 0.64, meaning Palo Alto’s rent-to-price ratio is only 0.64 times San Jose’s.
You can’t just accept the results table without thinking about it. If you own a very expensive house in Atherton, are you going to rent it out and see it on Zumper? Probably not. The few less expensive houses in Atherton will probably pull the rental cost away from the median house value. For typical cities, the table should give a pretty good indication.
Another anomaly in median rental prices reported by Zumper is East Palo Alto, with a reported monthly rental price of $6,850, which is surpassed only by Palo Alto and Los Altos Hills.
It appears that Newark and San Jose are likely the best cities to be a landlord in. If a house’s value is proportional to its price, then Los Altos and Los Altos Hills may have the best houses to own and live in because they offer the worst rental returns and are least likely to have their prices pushed up by rental-income opportunities.
Newark real estate prices.
San Jose real estate prices.
Atherton real estate prices.
Palo Alto real estate prices.
Los Altos real estate prices.
Los Altos Hills real estate prices.