The extent to which tenants’ rent covers a landlord’s mortgage can vary widely, according to a city-by-city breakdown of how much rent goes into paying property owners’ own mortgages.

As it became painfully clear during the pandemic, landlords rely on rent from their tenants to pay their building mortgages and other necessary expenses.

But the extent to which tenants’ rent covers a landlord’s mortgage can vary widely from city to city, even as landlords must also come up with the funds for regular maintenance and renovations.

Insurance agency Surety First recently conducted a study to determine how much of a landlord’s mortgage renters cover through their rent on average, determining that renters in Memphis, Tennessee, cover the highest percentage of a landlord’s mortgage.

The study drew on Zillow data for average rent and average median home value in the 50 most populous U.S. cities between September 2016 and September 2021. From that data, Surety First then calculated the median mortgage payment by city by assuming a mortgage term of 30 years, at a 4 percent interest rate and a down payment of 6 percent of Zillow’s median home values. The insurance agency then calculated each city’s average rent as a percent of its average mortgage payment.

In the top 20 cities where renters pay the highest percentage of their landlord’s mortgage, renters cover more than 200 percent of landlords’ mortgages, according to Surety First’s analysis. In Memphis, where renters cover the highest percentage, renters pay a whopping 293.03 percent of their landlord’s mortgage.

With the real estate market as hot as it is now, and with landlords clearly holding a lot of leverage in some of these cities, Surety First recommended landlords consider taking the opportunity to spruce up their properties a bit.

“Landlords in these cities might want to consider doing some renovations since they likely are not having any trouble finding tenants in this wild real estate market and are turning the largest profit in the country,” Jeremy Schaedler, founder of Surety First and the report’s author, wrote.

At the opposite end of the spectrum, renters pay the lowest proportion of a landlord’s mortgage in San Jose, California, where rent only covers 88.36 percent of a mortgage. That’s perhaps a bit unexpected coming from a metro area that’s notoriously expensive. But that also means that’s it’s actually cheaper to rent than to buy a property and pay a mortgage in San Jose, which generally bucks the national trend of it being more cost effective to buy a home than rent in most cities.

“Out of the 50 cities we analyzed, it is cheaper to rent than to pay a mortgage in just two of them,” Schaedler wrote. “San Franciscan renters pay 99.07 percent of what they would spend on a mortgage payment and the rent-to-mortgage ratio in San Jose, California, is 88.36 percent.”

“Whether renters are paying less than the monthly mortgage payment or up to three times that amount makes a huge difference in the amount of cash flow a landlord has for paying utilities, maintenance operations and renovations to the property,” Schaedler concluded.

Email Lillian Dickerson

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