One of the metrics to look at when picking an area for a long term investment is the affordability index. And by that I don’t mean looking soley at how much the median income is in an area…I mean:
Average Rent/Median Household Income = Affordability Index. (What portion of your pay goes to rent?)
It’s great that some investment counselors track Median Household Income (MHI), but without the context of average rent for that area we really don’t have a way to evaluate areas that have long-term rent expansion capability. An obvious example is New York City. Clearly the MHI is higher there, but so are average rents. New York has an affordabilty Index of 57.2%. That means that between half and two thirds of the household income goes for rent. I suggest that while NYC has posted impressive rent gains for all property types, that the pace of those increase is likely to wane…how much more than 57% of your income could you afford to pay for rent? Years ago I had an employee that considered himself to be a real tout, a master horse race handicapper. Mark would always tell me: “Rick, there are horses that run fast, and horses that run long…but aint no horse that runs fast and long.”
Highly Ranked Portland
With Average Rents at $825 and Median Household Incomes at $57,757, Portland’s Affordability Index is 16.8%. That’s fifth in the nation. Portland-Beaverton-Vancouver “Asking Rents” jumped an average of of 3.1% in the fourth quarter of last year compared to a year earlier. Full disclosure: Oklahoma City had the nations best ratio at 12.3%…but the catch is that if you move there …every morning you wake up in Oklahoma.
With room for long term rents to expand and a great area to live in, isn’t this a great time to invest in Portland area multifamily properties?