InvestLL Archives

Feb

2025

How to Invest in Stocks: A Beginner’s Guide

By Krystal Etienne | Growing Wealth, invest, Investing | Comments Off

Table of Contents

How to Start Investing in Stocks: 5 Steps
Step 1: Determine Your Investing Approach
Step 2: Decide How Much You Want to Invest in Stocks
Step 3: Open an Investment Account
Step 4: Choose Your Stocks
Step 5: Continue Building Your Portfolio
Stock Tips for Beginners
FAQ

Stocks are shares of ownership in a company. To start investing in stocks, you would find a company that you believe may grow or appreciate in value over time, then purchase its stock through a brokerage account. If the stock price rises, you could sell your shares and potentially make a profit — or suffer a loss, if share prices decline.

Of course, when it comes to investing in stocks as a beginner, you’ll want to learn the basics so that you’re confident and comfortable with the decisions you make. Here is a step-by-step guide for those who want to start investing in stocks now.

Key Points

• Stocks represent shares of ownership in a company and can be purchased through a brokerage account.

• Before investing in stocks, it may be wise to determine your investing approach and consider your time horizon.

• Different ways to invest in stocks include self-managed investing, using a financial advisor, or utilizing robo-advisors.

• The amount you invest in stocks will likely depend on your budget and financial goals.

• Investors may want to choose stocks based on thorough research, including analyzing a company’s financial statements and valuation metrics.

How to Start Investing in Stocks: 5 Steps

Taking the first step to invest in stocks is more straightforward than you’d expect. But it may be a good idea to sit down and think through your approach, strategy, goals, and more, before actually throwing some money into the markets. Here is a broad, basic rundown of how to start investing in stocks:

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1. Determine Your Investing Approach

As noted, before you get started investing in stocks, you need to determine your investing approach. Because every person has unique financial goals and risk tolerances, there is no one-size-fits-all strategy to begin investing in the stock market.

Most people will need to decide whether they want a hands-on approach to investing or whether they’d like to outsource their wealth building to some sort of financial professional, or service.

Additionally, investors need to consider their time horizons before investing in stocks. Some investors want to invest long-term — buying and holding assets to build wealth for retirement. In contrast, other investors are more interested in short-term trading, buying and selling stocks daily or weekly to try and make a quick profit. The type of investor you want to be will help determine what kind of stocks you should buy and your investing approach.

2. Decide How Much You Want to Invest in Stocks

How much you invest will likely depend on your budget and financial goals. You may decide to invest with whatever you can comfortably afford, even if that doesn’t amount to much.

Fortunately, it’s fairly easy to start investing even with relatively little money. Many brokerage firms offer low or no trading fees or commissions, so you can make stock trades without worrying about investment fees eating into the money you decide to invest.

Additionally, many brokerage firms offer fractional share investing, which allows investors to buy smaller amounts of a stock they like. Instead of purchasing one stock at the value for which the stock is currently trading — which could be $1,000 or more — fractional share investing makes it possible to buy a portion of one stock. Investors can utilize fractional investing to use whatever dollar amount they have available to purchase stocks.

For example, if you only have $50 available to invest and want to buy stock XYZ trading at $500 per share, fractional share investing allows you to buy 10% of XYZ for $50.

3. Open an Investment Account

Once you’ve determined your investing approach and how much money you can invest, you’ll need to open a brokerage account to buy and sell stocks and other securities.

Several investment accounts might make sense for you, depending on your comfort level in managing your investments and your long-term financial goals. But in a general sense, there are a few options for investors: Full-service brokerages, online brokerages, and robo-advisors. But you can also invest using a retirement account, too.

Full-service brokerages

Many investors may use traditional brokerage firms, also known as full-service brokerages, to buy and sell stocks and other securities. A full-service brokerage offers additional services beyond just buying and selling stocks, such as investment advice, wealth management, and estate planning. Typically, full-service brokerages provide these services at high overall costs, while discount and online brokerages maintain scaled-down services with lower overall costs.

A full-service brokerage account may not be the best option for investors just getting started investing in stocks. These firms often require substantial account minimum balances to open an account. This option may be out of reach for most in the early stages of their investing journey.

Online brokerage

An online brokerage account may be ideal for most beginning investors looking to have a hands-on approach to trading stocks and building a financial portfolio. Many online brokers offer services with the convenience of an app, which can make investing more streamlined. If you feel confident or curious about how to start investing at a lower cost than a full-service brokerage firm, opening an account with an online broker could be a great place to start.

Robo-advisor

If you’re interested in investing but want some help setting up a basic portfolio, opening an investment account with a robo-advisor might be best for you. A robo-advisor uses a sophisticated computer algorithm to help you pick and manage investments. These automated accounts generally don’t offer individual stocks; instead, they build a portfolio with a mix of exchange-traded funds (ETFs). Nonetheless, it’s a way to become more familiar with investing.

Retirement option: 401(k) and IRAs

Retirement accounts like employer-sponsored 401(k)s or individual retirement accounts (IRAs) are tax-advantaged investment accounts that can be great for the beginning investor trying to build a retirement nest egg. These accounts offer investors a range of investment choices, including individual stocks. You may also have access to tutorials, advisors, or other resources to help you learn how to start investing in these accounts.

💡 Ready to start retirement investing? Consider opening an IRA online.

4. Choose Your Stocks

Deciding what individual stocks to invest in can be challenging for most investors. There are countless ways to evaluate stocks before you buy.

Before choosing your stocks, you generally want to do some homework into a company’s inner workings to understand the company’s overall valuation and the stock’s share price.

As a beginning investor, you want to get comfortable reading a company’s balance sheet and other financial statements. All publicly-traded companies must file this information with the Securities and Exchange Commission (SEC), so it shouldn’t be difficult to track those statements and filings down.

One of the most fundamental metrics for understanding a stock’s value compared to company profits is its price-to-earnings (PE) ratio. Others include the price-to-sales (PS) ratio and the price/earnings-to-growth (PEG) ratio, which may be helpful for companies that have little to no profits but are expanding their businesses quickly.

These metrics, and other financial ratios, may help you determine what stocks to buy. And the advantage of owning individual stocks is that you can get direct exposure to a company you believe has the potential to grow based on your research. The downside, of course, is that investing doesn’t come with guarantees, and your stock’s value could decline.

💡 Recommended: 7 Technical Indicators for Stock Trading

5. Continue Building Your Portfolio

After you’ve decided what stocks to invest in, you generally want to continue building a portfolio that will help you meet your financial goals.

One way to bolster your portfolio is by buying mutual funds and ETFs, rather than individual stocks. A potential benefit to investing in funds that hold stocks is that you may avoid some of the risks of being invested in individual stocks that may not perform well.

Whether investing in individual stocks or funds, you may want to consider the level of diversification in your portfolio that feels right for you. There is no consensus about the right way to diversify investments. For one person, ideal diversification could mean owning 20 stocks in different industries. For another, it could mean owning the “whole” market via a handful of mutual funds.

Once you get more comfortable investing in stocks and funds, you may employ other investing strategies.

Stock Tips for Beginners

As you wade into the markets, it can be a good idea to keep a few things in mind.

• Consider Your Approach Carefully: As mentioned, some investors like to have a hands-on approach to investing (active), while others prefer a more passive approach. Active investors want to make decisions on their own, picking what stocks are right for them and building a portfolio from the ground up. This self-managed strategy can be time-consuming but an excellent option for investors who have a general understanding of the markets or would like to learn more about them. Take some time to think about the pros and cons of each approach.

• Think About Asset Allocation: Asset allocation involves spreading your money across different types of investments, like stock, bonds, and cash, in order to balance risk and reward. Determining a portfolio’s asset allocation can vary from person to person, based on financial goals and risk tolerance.

• Compare Account Costs and Features: No matter where you decide to open your investment account, be sure to research and compare costs and features within the account. For example, many brokerage accounts charge investment fees and commissions for making trades, while some do not, though other fees may apply. You should check with your brokerage’s fee schedule to get a good idea of what costs may be applicable.

Test your understanding of what you just read.

The Takeaway

Historically, investing in the stock market has been a way for some individuals to build personal wealth. These days, it’s never been easier for new investors considering getting into stocks to start. Whether you choose to work with a financial advisor or use an online broker or app, there are several ways to find a method that makes stock investing approachable, fun, and potentially profitable.

Of course, there are no guarantees, so it’s wise to take a step-by-step approach, start small if you prefer, do some research using the many resources available, and see what comes as you gain experience and confidence.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

Do you need a lot of money to start investing in stocks?

You don’t need a lot of money to start investing in stocks. Many brokerages allow investors to start investing with relatively little money, and many also offer fractional investing features and options.

Are there fees when investing in stocks?

There may be fees involved with investing in stocks, such as commissions or trading fees. Whether an investor is charged a fee will ultimately come down to the specific brokerage or platform they’re using to invest.

Is stock trading good for a beginner?

Stock trading, or day-trading, is generally for more advanced investors. But stock trading over longer periods of time may be good for investors to learn to get a hang of the markets. Beginners who are interested in stock trading may want to consult with a financial professional to get a better idea of a suitable trading strategy.

Should beginner investors buy individual stocks or stock funds?

Many financial professionals would likely recommend that beginner investors buy funds rather than individual stocks, as they offer some built-in diversification, in many cases. That said, what an investor ultimately decides to do should be dictated by their overall strategy and goals.

Is stock investing safe for beginners?

Stock investing is not necessarily safe for beginners or veteran investors. Investing has its risks, and there are investment types with different levels of risk that investors should familiarize themselves with.

Photo credit: iStock/

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q324-043

Feb

2025

Options Trading vs Gambling: How to Tell Them Apart

By Dan Miller | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Gambling is typically defined as risking something of value on an uncertain event. Although common forms of gambling include lottery games, blackjack, or sports betting, the line between gambling and investing can be less distinct. For example, binary options are unlike standard options, as they involve an all-or-nothing payoff that makes them more akin to gambling.

It’s important to know that there are some important differences between options trading and gambling, however. Understanding the similarities and differences can help you decide whether your options trading behavior is investing or gambling.

Key Points

• Options trading can resemble gambling due to high risks but is legitimate with a solid strategy and risk management.

• Protective collars, involving holding assets and using options, limit losses and reduce risk.

• A well-defined trading strategy may incorporate stock analysis, technical and fundamental indicators, and risk mitigation.

• Social pressure and excitement can blur the line between investing and gambling, leading to irrational decisions.

• Potential outcomes range from significant losses to profits, emphasizing the need for informed and strategic trading.

What Is Options Trading?

Options trading is the trading of contracts that give a purchaser the right — but not always the obligation — to buy or sell a security, like a stock or exchange-traded fund (ETF), at a fixed price within a specific period of time. Since options contracts fluctuate in value, many traders can buy or sell the contracts before expiration for a profit or loss, just like they would trade a stock or bond.

Options are financial derivatives, meaning an option contract’s value is derived from the value of an underlying asset.

There are two main types of options: call and put options. A call option gives the holder (or buyer) the right to buy an underlying asset, and a put option gives the holder the right to sell it. In general, if you think the underlying asset price will go up, you would buy a call option. But if you believe the underlying asset price will go down, you would buy a put option.

Buying a put or call option, in of itself, is a long strategy. However, options traders may also sell options or use advanced combinations of buying and selling options to pursue certain outcomes. There are many strategies for trading options, whether you anticipate rising, falling, or neutral market trends. Options can be a way to hedge risk or increase leverage for a given investment.

Weekly Options

Most options contracts expire on the third Friday of each month. However, many underlying securities also have options that expire weekly. These options are referred to as weekly options. Weekly options often have lower liquidity and higher volatility, since there is less time to smooth out the ups and downs of stock movement. This short timeframe makes weekly options more speculative since small price movements can have an outsized impact on your premium.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

Is Options Trading Gambling?

There are many risks in playing the market, so investors should be cautious with their investments and have a risk mitigation plan in place before making any type of stock or option trade. Although options trading is a legitimate investment activity, it involves significant risks that, without a solid strategy, can resemble gambling behavior.

Are Weekly Options Gambling?

Weekly options — along with day trading — are another form of investing in the stock market that shares some characteristics with gambling. If you find yourself rapidly making trades in weekly options without a system in place, trading from social pressure, or because of excitement, you may be gambling rather than investing.

Mitigating Risk When Trading Options

Risk management is one of the most important parts of a solid investment strategy. If you are trading options, it’s crucial to have a plan for handling risk. One way that you can protect your capital and manage risk when trading options is through the use of protective collars.

For example, protective collars involve holding the underlying asset, selling a call option, and buying a protective put against it. This is designed to limit potential losses. This may reduce your risk of loss from larger-than-expected moves, but also can reduce your overall gains.

How to Tell if You Are Investing or Gambling

There are no hard-and-fast rules to determine the difference between investing and gambling, but here are a few questions you can ask yourself to help tell the difference.

Trading Due to Social Pressure

If you find yourself trading options due to social pressure, that can signify that your activities are closer to gambling than investing. It can be common — especially in a bull market — for people to talk about investing with friends and co-workers. If you find that you are trading due to social pressure, especially without a financial plan in place or understanding of your risk tolerance, that may be a sign that you should reconsider trading stocks or options.

Trading Without a System

Having a system in place for how and when you trade is a good indicator that you are investing, rather than gambling. An investment system can include things such as stock analysis, technical and fundamental indicators, and a risk mitigation plan for what to do when a trade moves against you. If you are trading based on hunches and chance, that may indicate that you’re gambling and not investing.

Trading Because It Can Be Exciting

For some, there can be a degree of excitement that comes with making money. If that excitement is the primary reason you’re trading, however, that may be more akin to gambling than actual investing. It can be hard to separate emotions from rational thinking when making stock and option trades, which is another reason to have a trading strategy in place.

Investing With SoFi

There are no hard-and-fast rules that determine whether any particular trading behavior is investing or gambling. Instead, you might think about the reasons why you are investing. If you are trading options for the excitement, to fit in with others, or without a system, that may be a sign that your activity is closer to gambling than actual investing.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are the reasons to consider trading options?

For experienced investors, there may be many reasons to trade options. One reason can be to hedge an existing investment. Another possible reason is to get additional leverage. With leverage in options trading, you may make (or lose) more money with a smaller investment.

What are the reasons to not trade options?

Options trading does carry some risk for investors, which can be one reason not to participate in the options market. Options are also typically more volatile than their underlying stock, and some options strategies run the risk of losing your entire investment or even putting you in a position where you owe more than you have available. If you are just starting your investment journey, it might be a better idea to get practice by making less risky investments to gain experience.

Can you lose money from options trading?

As with nearly all investments, options trading carries the risk of losing money. Some options trading strategies run the risk of losing 100% of your investment. If you buy a call option and the stock closes at expiration below your strike price, your option will expire worthless. If you sell call options, you can even be in a position of losing a potentially unlimited amount.

Photo credit: iStock/fizkes

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q424-069

Feb

2025

Guide to Options Prices: How are Options Priced?

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Options are derivative financial instruments that give buyers the right (but not the obligation) to buy or sell an underlying security, such as a stock, at a predetermined price (the strike price) within a set time frame. The price of an option, known as the premium, is determined by factors like the underlying asset’s market price, intrinsic value, time until expiration, and volatility.

Understanding how options are priced can help investors decide when to enter or exit a trade, manage risk, or evaluate potential returns.

Key Points

• Option pricing may be based upon factors including market price, intrinsic value, time value, and volatility.

• The Black-Scholes model is used for European options, factoring in stock price, strike price, interest rates, time to expiration, and volatility.

• The binomial model suits U.S. options, valuing an option based on whether the underlying asset’s price moves up or down at each step before expiration.

• The trinomial model extends the binomial model by adding an unchanged price outcome, suitable for complex options.

• Options are high-risk investments that allow traders to seek profit from the price movements of stocks, or to hedge against potential losses.

How Is an Option Price Determined?

There are two main types of options: call options and put options. An investor who buys a call option acquires the right to buy the underlying asset at the strike price price, while, conversely, an investor who buys a put option acquires the right to sell the option’s underlying asset at the strike price.

Options traders analysts take many factors into account to determine the price, or premium, of call options and put options. The most widely known method for determining the value of an option is the Black-Scholes model. But other models — such as the binomial and trinomial options pricing models — are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• The market price of the stock that underlies the option

• The current intrinsic value of the option

• The time until the option expires

• Volatility

Market Price and Intrinsic Value

Market price first is easy to understand — it’s the price at which the underlying stock is trading. The second factor — the intrinsic value of the option — is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Time Value

The time until expiration is more complex. This so-called time value reflects the amount of time before expiration of a contract in options trading. It represents the possibility that an out-of-the-money option could eventually become profitable.

It’s the one part of an option’s value that only goes down — and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date approaches, larger price movements in the underlying stock are required to create significant changes in the option’s price.

Volatility

Time value reflects the potential for price movement from the underlying asset, influenced by factors such as volatility and market expectations of future price fluctuations. As a general rule, stocks with a history of high volatility underlie options with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by a measure of price fluctuations of the underlying asset. Beta, on the other hand, measures the asset’s volatility versus the volatility of the overall market. Options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• The underlying stock’s price

• The option’s strike price

• Current interest rates

• The option’s time to expiration

• The underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The binomial option pricing model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial is based on the assumption that, in any pricing scenario, an underlying asset’s price will move either up or down. As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs, such as the underlying asset’s price, strike price, time to expiration, the interest rate, and volatility, and its equation may be updated as new information emerges.

In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Options pricing isn’t just about a single number — it’s the result of multiple factors, from market price and volatility to the passage of time. Investors rely on models like Black-Scholes, binomial, and trinomial pricing to estimate an option’s value, each offering different insights depending on the type of contract.

Although these calculations can seem complex, the core idea remains the same: an option’s price reflects both current conditions and future possibilities. Understanding these mechanics can help traders make more informed decisions, whether they’re managing risk or seeking new opportunities in the market.

Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/ljubaphoto

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q125-118

Jan

2025

Investing in Transportation Stocks and ETFs

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Do you want to invest in transportation stocks or a transportation ETF? Here’s everything you need to know to get started investing in transportation.

Jan

2025

Price-to-Rent Ratio in 52 Cities

By Becca Stanek | Budgeting & Goals, Home Ownership, mortgage | Comments Off

Better to buy or rent? The price-to-rent ratio is a reference point that can help gauge affordability in any city — especially for people on the move. More specifically, the price-to-rent ratio can be helpful when looking at a certain area and deciding whether to sink your life savings into a home, or pay a landlord and wait to buy.

Read on to see the home price-to-rent ratio in some of the biggest U.S. cities.

Table of Contents

What Is the Price-to-Rent Ratio
Price-to-Rent Ratio by City
How to Calculate Price-to-Rent Ratio
The Takeaway

Key Points

• The price-to-rent ratio is a measure of whether it’s more affordable to rent or buy a home in a particular city.

• It is calculated by dividing the median home price by the annual rent.

• A price-to-rent ratio below 18 suggests that buying is more affordable, while a ratio above 18 indicates renting may be more cost-effective.

• The price-to-rent ratio varies across cities, with some cities having ratios well above 18, in many cases above 25. Others come in at 18 and below.

• Factors such as housing market conditions and local economic and environmental factors may influence the price-to-rent ratio in different cities.

First, What Is the Price-to-Rent Ratio?

The price-to-rent ratio compares the median home price and the median annual rent in a given area. (You’ll remember that the median is the midpoint, where half the numbers are lower and half are higher.) To make sense of a city’s price-to-rent ratio, here’s a general idea of what the number suggests:

• A ratio of 1 to 15 typically indicates that it’s more favorable to buy than rent in a given community.

• A ratio of 16 to 20 indicates that it’s typically better to rent than buy.

• A ratio of 21 or more indicates that it’s much better to rent than buy.

As you can see, the ratios could be useful when considering whether to rent or buy. Investors also often look at the ratios before purchasing a rental property.

The numbers also may be used as indicators of impending housing bubbles. A substantial increase in the ratio could mean that renting is becoming a much more attractive option in that specific housing market.

The ratios may warp after wildfires or other natural disasters, which can cause housing shortages and migration of residents, as well as rent spikes. Research released in 2024 by the University of Georgia and the Brookings Institute demonstrated that a succession of environmental events can drive up local rents as much as 12% over a five-year subsequent period.

If you’re exploring different areas, it can be a good idea to estimate mortgage payments based on median home prices in the place where you hope to live. That way, you can determine if they’re a cost you can reasonably afford to add to your budget on a monthly basis.

Recommended: How to Apply for a Home Loan Online

Price-to-Rent Ratio by City

Here are 52 popular metropolitan areas and their price-to-rent ratios. As of the third quarter of 2024, the median home sale price in the U.S. was $420,400, the Federal Reserve Bank of St. Louis reported.

Median sale price listed comes from Redfin as of the fourth quarter of 2024. Median rents listed come from the Zumper National Rent Report from January 2025, based on a one-bedroom apartment. Remember, as home prices and rents shift—over time or suddenly—so do the ratios.

1. San Francisco

It’s no secret that San Francisco housing prices are way up there. The median sale price was $1,350,000, and the median rent for a one-bedroom apartment was $3,160 per month (or $37,920 a year). That gives the hilly city a price-to-rent ratio of nearly 36.

2. San Jose, CA

Golden State housing continues its pricey reputation in San Jose. The median sale price here was $1,455,000, and the city had a median one-bedroom rent of $32,640 annually ($2,720 a month), leading to a price-to-rent ratio of 45.

3. Seattle

The Emerald City had a median sale price of $835,000. Meanwhile, the median annual rent for a one-bedroom was $23,400, for a price-to-rent ratio of around 36.

4. Los Angeles

A median sale price of $1,010,000 and a median one-bedroom rent of $28,800 a year ($2,400 a month) shines a Hollywood light on renting, with a rent-to-price ratio of 35.

5. Long Beach, CA

With a median home price of $855,000 and one-bedroom rent averaging $1,850 a month, Long Beach earned a ratio of 39.

6. Honolulu

The ratio in the capital of Hawaii is a steamy 22, with a $570,000 median sale price and a median rent of $26,400 per year.

7. Oakland, CA

Oakland, across the bay from San Francisco, had a median sale price of $802,500 and median rent of $24,000 a year ($2,000 a month). This earned the location a price-to-rent ratio of 33.

8. Austin, Texas

A hotbed for artists, musicians, and techies, Austin had a price-to-rent ratio of nearly 31. This was thanks to a median sale price of $550,000 and median annual rent of $18,000.

9. San Diego

Hop back to Southern California beaches and “America’s Finest City,” where a median sale price of $931,000 and median rent of $28,800 a year led to a ratio of almost 32.

10. New York, N.Y.

The median sale price here was $807,720 and median rent was $51,600 a year ($4,300 a month), which equates to a price-to-rent ratio of roughly 16.

Of course, the city is composed of five boroughs: the Bronx, Brooklyn, Manhattan, Queens, and Staten Island, and it’s probable that most of the sales under $800,000 were not in Manhattan (where the median sale price was $1.2 million) or Brooklyn (where the median was $999,000). Just looking at Manhattan using the same annual average rent figure, the ratio looks more like 23.

11. Boston

With a median sale price of $845,000 and median rent of $34,080 a year, Beantown had a price-to-rent ratio of nearly 25.

12. Portland, OR

The midpoint of buying here of late was $490,000, compared with median rent of $17,400 per year, for a price-to-rent ratio of just over 28.

13. Tucson, AZ

In Tucson, the median sale price of $340,000 and median annual rent of $10,920 came out to a ratio of 31.

14. Denver

The Mile High City logged a renter-leaning ratio of 28, thanks to a median sale price of $586,000 and median annual rent cost of $20,760.

15. Colorado Springs, CO

With a median sale price of $465,000 and annual rent of $14,880, this city at the eastern foot of the Rocky Mountains had a recent price-to-rent ratio of 31.

16. Albuquerque, NM

In the Southwest, Albuquerque heated up to a ratio of almost 31, based on a median home sale price of $350,000 and annual rent of $11,400.

17. Washington, DC

The nation’s capital is another pushpin on the map with a high cost of living. The median sale price of $699,000 compares with median rent of $27,600 annually ($2,300 a month), translating to a ratio of 25.

18. Mesa, AZ

With a median sale price of $463,000 and median annual rent of $14,640, Mesa has a price-to-rent ratio of nearly 32.

19. Las Vegas

Sin City has reached a ratio of almost 31, based on a $444,000 median sale price vs. $14,400 in annual rent.

20. Phoenix

Phoenix’s price-to-rent ratio has revved up to 29, with a median home sale price of $450,000 and $15,360 in rent.

21. Raleigh, NC

North Carolina’s capital, the City of Oaks, logs a ratio of 30. This is based on a $460,000 median home sale price and median annual rent of $15,000.

22. Tulsa, OK

Tulsa had a price-to-rent ratio of 19, with median annual rent of $12,000 and home sale prices at a median of $228,000.

23. Dallas

This sprawling city had a recent median sale price of $410,000 and median annual rent of $17,760, leading to a price-to-rent ratio of 23.

24. Sacramento, CA

This Northern California city had a recent median sale price of $485,000 and median annual rent of $18,120, for a price-to-rent ratio of nearly 27.

25. Fresno, CA

Fresno makes the list with a price-to-rent ratio of 22, based on median home sale prices of $374,750 and median annual rent of $16,680.

26. Oklahoma City

The capital of Oklahoma had one of the lower price-to-rent ratios until recent home price spikes. It logs a ratio of nearly 24 lately, based on a median sale price of $260,000 and median annual rent of $10,920.

27. Arlington, TX

Back to the Lone Star State, this city between Fort Worth and Dallas has a price-to-rent ratio of 24. This is thanks to a median sales price of $320,000 and median annual rent of $13,200.

28. San Antonio

This Texas city southwest of Austin had a median sale price of $251,750 and median annual rent of $12,840, resulting in a price-to-rent ratio of close to 20.

29. El Paso, TX

El Paso traded a low price-to-rent ratio for a higher one when home prices rose. It’s at a 24, based on recent figures of a median sale price of $254,970 and median rent at $10,560 a year.

30. Omaha, NE

With a median sale price of $277,000 and median annual rent of $13,920, Omaha has a lower home price-to-rent ratio than in recent years at 23.

31. Nashville, TN

The first Tennessee city on this list is the Music City, with a rising price-to-rent ratio of 23. Nashville has a median sale price of $455,000 and a median annual rent of $19,680 ($1,640 per month).

32. Virginia Beach, VA

The ratio here has nearly reached 20, based on a median home sale price of $376,000 and median rent of $19,200 per year.

33. Tampa, FL

This major Sunshine State city has a price-to-rent ratio of 23, based on a median home sale price of $450,000 and median annual rent of $19,320.

34. Jacksonville, FL

This east coast Florida city had a recent ratio of 22, based on a median sale price of $312,000 and median rent of $15,040 per year.

35. Charlotte, NC

Charlotte’s price-to-rent ratio of 23 arises from a median home sale price of $400,000 and median annual rent of $17,160.

36. Fort Worth, Texas

Panther City’s price-to-rent ratio has crept up to 22, based on a median home sale price of $345,000 and median rent of $15,720 per year.

37. Houston

Houston, we have a number: It’s a price-rent-ratio of 22. That’s based on a median sale price of $339,370 and median annual rent of $15,600.

38. Louisville, KY

Kentucky’s largest city has a median home sale price of $255,000 and median annual rent of $12,240. That leaves Louisville with a price-to-rent ratio of almost 21.

39. Columbus, OH

The only Ohio city on this list has a price-to-rent ratio of 19, due to a median sale price of $275,700 and median annual rent of $14,520.

40. Atlanta

Heading South, Atlanta has a median sale price of $400,000 and median annual rent of $19,080, for a price-to-rent ratio of 21.

41. Miami

Those looking to put down roots in this vibrant city will find a price-to-rent ratio of 20, based on a median home sale price of $635,000 and median rent of $32,280 annually.

42. Minneapolis

The Mini-Apple is sweeter on renting, with a ratio of 21. This is based on a median sale price of $344,000 and median annual rent of $16,200.

43. New Orleans

Next up is another charming southern city. New Orleans has a price-to-rent ratio of nearly 18, given a median sale price of $335,000 and median rent of $19,200 per year.

44. Kansas City, MO

In this Show-Me State city, a median home value of $275,000 and median annual rent of $13,560 equate to a price-to-rent ratio of 20.

45. Chicago

The Windy City’s almost 15 price-to-rent ratio is based on a $350,000 median home sale price and $23,760 median annual rent.

46. Memphis, TN

Memphis logs a price-to-rent ratio of 13, with a median home sale price of $170,000 and median annual rent of $12,960.

47. Indianapolis

The ratio in this capital city drifted down to 17, thanks to a median home sale price of $243,450 and median annual rent of $14,160.

48. Philadelphia

This major East Coast city had a recent median sale price of $260,000 and median annual rent of $18,600, for a price-to-rent ratio of 14.

49. Baltimore

Charm City had a recent median home sale price of $224,000 and median annual rent of $15,840, resulting in a price-to-rent ratio of 14.

50. Newark, NJ

Newark, anyone? The median sale price here is $510,000, with median rent at $1,750 a month (or $21,000 a year), leading to a ratio of 24.

51. Milwaukee

Milwaukee is hanging on as a city more favorable to homebuyers than renters, thanks to a price-to-rent ratio of 18. This Midwest city had a recent median sale price of $220,000 and median annual rent of $12,360.

52. Detroit

Detroit has seen a consistent rise in home sale prices, though the latest median sale price was a relatively low $97,200, compared with median annual rent of $12,600. This resulted in a price-to-rent ratio that is approaching 8.

Recommended: Cost of Living Index by State

How to Calculate Price-to-Rent Ratio

If you don’t see your city on the list, rest assured that it’s possible to calculate price-to-rent ratio yourself. To do so, you’ll simply take the median home sale price in your area and divide it by median annual rent.

Here’s an example: Let’s say the median rent in a city is $3,000 a month, and the median sale price is $1 million. You’d divide $1 million by $36,000 ($3,000 per month multiplied by 12, the number of months in the year). The result is a price-to-rent ratio of nearly 28.

The Takeaway

The price-to-rent ratio lends insight into whether a city is more favorable to buyers or renters. Usually in a range of 1 to 21-plus, the ratio is useful to house hunters, renters, and investors who want to get the lay of the land.

No matter what your dream city’s price-to-rent ratio, looking at the listings for homes for rent and for sale will tell you a lot about the market. Who knows, you might even happen on just what you wanted at an accessible price.

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Photo credit: iStock/sl-f

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Price-to-Rent Ratio in 52 Cities

First, What Is the Price-to-Rent Ratio?

Price-to-Rent Ratio by City

1. San Francisco

2. San Jose, CA

3. Seattle

4. Los Angeles

5. Long Beach, CA

6. Honolulu

7. Oakland, CA

8. Austin, Texas

9. San Diego

10. New York, N.Y.

11. Boston

12. Portland, OR

13. Tucson, AZ

14. Denver

15. Colorado Springs, CO

16. Albuquerque, NM

17. Washington, DC

18. Mesa, AZ

19. Las Vegas

20. Phoenix

21. Raleigh, NC

22. Tulsa, OK

23. Dallas

24. Sacramento, CA

25. Fresno, CA

26. Oklahoma City

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