Oklahoma City and San Jose, California, top lists of cities where homeowners deciding to rent rather than sell their homes could see the biggest gains.
That's according to real estate information website Zillow Inc., which ran data to see what current homeowners could make if they became mom-and-pop landlords. The Okies in their state's capital city win when it comes to monthly profits: $536, or $6,431 annually.
For long-term gains, the top 10 cities are those where homeowners would lose money every year by renting -- until the big payoff when they sell. Zillow translates that gain, looking back, into monthly and yearly profits. So fast-appreciating Californian cities win big, led by San Jose. (Scroll down to see the Top 10 lists; the entire list is here.) The top 10 short-term gainers range geographically from Rochester, N.Y., to Dallas-Fort Worth, Texas. Monthly rental profits there are $349 and $264, respectively, or annual income of $4,182 and $3,166.
Profit is expected rental income minus monthly mortgage payments for a home bought in June, 2009. It's assumed a homebuyer put 20 percent down and got a 30-year fixed-rate mortgage at an interest rate of 4.5 percent. Zillow chose 2009, it says, because most homeowners stay in a home for five to seven years, so for them the decision to rent or sell may be looming.
Big caveat: Zillow doesn't take into account the cost of living elsewhere while renting out your place.
Property and income tax, vacancies and maintenance are factored into the profit number. Maintenance is a bit of a wild card in the profit equation, since it depends on the age of a home, the weather and a lot of other things. Zillow factors in maintenance costs equal to .05 percent of a home's value annually. For owner households, the American Housing Survey conducted by the Census Bureau found that the median routine maintenance in 2011, the latest data, was $33 a month, or about $400 a year. Less than 60 percent of homeowners did maintenance activity in the prior two years; when they did, the median amount spent was $3,200.
As Zillow puts it in an explanation of its methodology: "We assume you’re not aiming to be a slum lord, so you’ll continue to maintain the home and will either allocate your valuable time to assist and find tenants or pay someone to do it for you." It also notes that homeowners insurance for landlords is 25 percent more than that for someone who is living in their home.
California is nowhere to be found on the short-term financial gain list, but it's all over the place in the long-term list, with six of the top 10 cities. Since in the long-term scenario Zillow assumes someone has held the property for six years before selling, and loses money from renting each year, only the flushest of mom-and-pop landlords could afford this gambit. In San Jose, for example, the monthly loss from rent would be $1,211. The monthly profit -- after adding in the equity ZIllow assumes would come when the property is sold -- is $10,138. So the monthly profit number is $8,927, the difference between the two numbers.
Here are the top 10 lists:
Top 10 Cities for Short-Term Financial Gains (monthly/annually):
10. Memphis, Tennessee ($242/$2,901)
9. Indianapolis ($251/$3,014)
8. Dallas-Fort Worth, Texas ($264/$3,166)
7. Tampa, Florida ($287/$3,448)
6. Rochester, N.Y. ($349/$4,182)
5. Denver ($355/$4,258)
4. Cincinnati ($385/$4,621)
3. Tulsa, Oklahoma ($396/$$4,753)
2. Miami-Fort Lauderdale, Florida ($515/$6,184)
1. Oklahoma City ($536/$6,431)
Top 10 Cities for Long-Term Financial Gains (monthly/annually):
10. Honolulu ($2,512/$30,144)
9. Sacramento ($2,694/$32,328)
8. Seattle ($2,861/$34,335)
7. Boston ($3,009/$36,109)
6. New York ($3,179/$38,147)
5. Riverside, California ($3,659/$43,907)
4. San Diego ($4,165/$49,983)
3. Los Angeles ($4,328/$51,938)
2. San Francisco ($6,078/$72,939)
1. San Jose ($8,297/$107,122)