A real estate investor was considering whether purchasing rental properties would yield a profit, focusing on properties in Billings. While inputting rental income, mortgage, property tax, and management fees into a spreadsheet, they concluded that they first needed to assess how much the sale price itself was affecting the rental yield.

Recent market trends show that in Billings, home prices and rental rates are moving in opposite directions. According to Zillow, the median home value in 2026 is projected to be $398,212, a 1.9% increase from the previous year. In contrast, the average rent reported by RentCafe is $1,498, which has only risen by 0.09% compared to the previous year, essentially remaining stagnant.

This situation becomes clearer when summarized using the price-to-rent ratio. This ratio divides the home price by the annual rent, and in Billings, the home price is about 22 times the annual rent of $17,976. Typically, a ratio above 20 indicates that the sale price is relatively high compared to rent. For investors looking to profit from rental income, this means that the sale price is heavy compared to rent, making it difficult to achieve favorable yields.

According to RentCafe, the rent for different room sizes is as follows: one-bedroom at $1,338 (approximately 733 square feet), two-bedroom at $1,566 (approximately 983 square feet), and three-bedroom at $1,926 (approximately 1,314 square feet). Even when converted to rent per square foot, larger units tend to have a slightly lower burden per unit area, so investors might want to compare yields based on unit size separately.

Billings is the most populous city in Montana, supported by the healthcare and energy sectors in its local economy. While it is considered to have a diverse industrial base that is not heavily affected by fluctuations in specific sectors, the gradual increase in new housing supply contributes to the steady rise in home prices.

Following the investor's calculations, even with a 20% down payment of $79,600 and financing the rest, the monthly expenses, including mortgage, property tax, insurance, and management fees, were found to be close to or exceeding the rental income of $1,498. This indicates that there is not much room for profit if only considering rental income. Moreover, if vacancies occur for just a month or two, the annual yield can be significantly impacted.

However, if the purpose is to reside in the property, the situation is somewhat different. A high ratio indicates that the sale price is relatively burdensome compared to rent, but if a down payment has already been secured and there are plans for long-term residence in Billings, the monthly outflow, whether for rent or mortgage, is essentially an expense. In fact, for long-term residents, the accumulating principal from a purchase may become more advantageous over time. If the current trend of stagnant rent continues, remaining a renter may not be a bad choice.

Ultimately, the numbers that investors and homeowners in Billings should focus on differ. Investors need to carefully consider the ratios in the current tight rental yield environment, while homeowners should prioritize their long-term residency plans and down payment situation.

Montana is known for having lower property taxes compared to other states, but since tax rates and assessment methods vary by county, it is advisable to verify based on actual listings. For investment purposes, it is important not to focus solely on rental yields but also to consider vacancy risks and management costs. It is recommended to factor in additional management costs that may arise due to local characteristics, such as winter heating or snow removal expenses, into the yield calculations. Since the actual management fees and property tax burdens vary by listing, it is safer to input numbers for each property of interest into a spreadsheet rather than making decisions based on a single ratio. Significant differences in yield can often be observed even within the same city. It is essential to develop a habit of comparing multiple listings side by side rather than drawing conclusions from a single number. This article does not constitute investment or legal advice, and it is recommended to consult with a professional before making any actual contracts.