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Best Cities to Invest in Rental Property

January 06, 2020

Best Cities to Invest in Rental Property 2020

As we enter 2020, the housing markets are beginning to heat up. Some are rated very hot with rising prices supporting high rents.  Yet some have shown volatility and others have weak price to rent ratios.

As cheap as some housing markets are, many of them still command a good sized rent price. And supporting the rental is a good investment concept, is a continuous shortage of affordable housing. There isn’t much hope that the situation will change. Which cities will investors be focused on in 2020?

Demand For Rental Property

And with apartment and home listings reduced, mortgage rates continuing low, rentable real estate in many cities looks promising.

  • Unemployment continues at record lows, wages rose 3.1%, and a huge portion of the renter market doesn’t have a hope of buying a home, particularly in California and Texas, and perhaps South Florida.
  • Banks are shying away from lending to builders and multifamily developers
  • Economies are strong and consumer still optimistic
  • Rent controls in some cities/states are tainting the picture for investors and hopeful renters as it will discourage investment and construction. For investors, or those who want to rent out part of their home, it makes the investment outlook brighter.

Check the multifamily housing markets in Colorado, California, Florida, Arizona, Nevada and Florida and you’ll find certain high yield cities are best for investors. It’s matter of hunting down properties in the idea neighborhoods.  We have a big list of the best cities to buy in below.

Typically, cities such as Austin, Raleigh-Durham, Nashville, Charlotte, Boston, Dallas-Fort Worth, Orlando, Atlanta, and Los Angeles get the nod as best cities buy property in. Yet the economy is in flux, and the demise of China is changing the economic outlook in the US heartland. To find the best towns and cities, we should be watching the trends, not just current price rent ratios.

Screenshot courtesy of Apartmentlist.com

The Search for Better Assets

The fact that so many people want or must rent a house, condo or apartment generates strong profit potential for rental income investors. For investors, it’s all about finding the best cities to invest in and perhaps avoiding the worst.

For newbies investigating rental income real estate, it’s an investment asset which actually pays you for owning it. Build profit, reduce taxes, and gain long term security through sustainable passive income using rental property.

Using new Proptech solutions such as Managecasa, you can elevate your property management process.  Discover how efficient modern property management can be. It makes all the difference.

Enjoy this epic report on the state of residential rental property investment for 2020 and the best cities to buy rental property in the US.  Australian investors, please see the reports on the Australia housing market and the Sydney rental housing market in particular. You have some particularly good long term prospects.

 

Can’t wait to see the Top Cities? See them Now

 

Find out more about the Best Multifamily Markets in the US

 

New Construction Apartment Condominiums are in demand

Which Housing Data Reveals the Best Cities?

There is no oracle regarding which rental properties are best.  Property investment isn’t a race.  Take your time to sift through and assess regional economic conditions, demographic trends, tax conditions, residential bylaws, unit types and sizes, employment rates and other important data to identify the best city and neighborhood for you.

There are city ratings related to lifestyle and livability that may weigh on your final decision. The economic outlook of each city will give you further support for buying.

Below, you’ll find a breakdown and detailed statistics from top data providers showing cities with the best potential. From there, you can break it down into specific high quality neighborhoods to weigh the profit odds in your favor.

Screenshot courtesy of Apartmentlist.com

 

 

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Rental Market Remains Solid for Investors

Screen Capture courtesy of Statista

New Apartment Stock Arriving

The US needs millions of new apartments by 2030.  And new construction won’t meet the demand, however investors will have more new construction rental opportunities to choose from in high employment regions.

Chart Courtesy of RealPage.com

Developers planned to deliver more than 100,000 new units per quarter nationwide from mid-2017 to mid-2018, up from 80,000 over the past year – from multifamilyexecutive.com yearly review

Renter Statistics:

  1. growth in rental demand was largest for people with incomes lower than $25,000.
  2. younger renters in the US account for 4 million new renters over the past decade.
  3. rental grew fastest for household incomes over $50,000 (3.3 million new renters).
  4. 1.6 million more renters now with incomes over $100,000 a year.
  5. the amount of rental stock also grew (including single-family houses which are now 40% of the total rental stock)
  6. rental vacancy rate was less than 5% in 75% of the United States largest cities
  7. 89% of the biggest cities saw rents grow in January
  8. smaller cities are seeing the biggest increases

 

Counter to the overall trend, renting is more affordable than buying a home in the nation’s 14 most populated counties and in 30 of 39 counties with a population of 1 million or more (76 percent) — including Los Angeles County, California; Cook County (Chicago), Illinois; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; and San Diego County, California, including cities of Miami, New York City, Seattle, Las Vegas, San Jose, San Francisco and Boston. — from Attomdata report

Trending in 2020

Property investors are getting more technical in how they search for and buy rental properties.  Big city markets price to rent ratios are out of whack and capital appreciation is negative. Now they’re looking into smaller secondary markets.

Secondary markets are heating up fast:

  • their rate of population growth is twice as fast
  • their job growth is more than double
  • population is younger
  • millennials desperate for accommodation, particularly house and townhouses
  • property has been appreciating much faster
  • offer more affordable living
  • southern US cities are where the growth is in 2018/2019

What Factors Rank Highest in Rental Investment Property Potential?

6 key factors to examine:

  1. Local economy
  2. Employment growth
  3. Wage growth
  4. Population growth
  5. Increase in home values
  6. Rental yield

Atomdata cited 874 cities with rental property net positive cash flow of above $5000 and 48 cities with net cash flows above $10000. Their net cash flow projection methodology subtracted mortgage payments, property taxes, insurance and 20% for property management from the gross rent.

That means that with good property management practices you can earn considerably more.

At the top of that $10,000 annual cash flow list based on highest percent cash-on-cash return were area codes 74126 in Tulsa, Oklahoma ($10,064 potential annual net cash flow); 63115 in St. Louis ($10,012); 19103 in Chester, Pennsylvania in the Philadelphia metro area ($10,237); 48234 in Detroit, Michigan ($10,292); and 08104 in Camden, New Jersey, also in the Philadelphia metro area ($11,388). — AtomData report.

How have you been doing your own cash flow analysis? You can download a cash flow analysis spreadsheet online, or you might use online property management software to help. Try out ManageCasa. It’s FREE!

 

 

Sharing is Good for Your Social Health 

and property investing is a more interesting way to grow your wealth!

 

Which Size of Rental Unit Should you Be Investing In?

The standard 2 bedroom apartment appears to have the best ROI going forward to 2020. (chart data courtesy of Rentcafe).

Rental Unit Type Average Rent Change in Rent M-o-M Change in Rent Y-o-Y
Studio $1,259 0.2% 2.5%
1 Bedroom $1,225 0.1% 3.4%
2 Bedroom $1,408 0.1% 3.5%
3 Bedroom $1,644 0.2% 3.2%

Buy Low Rise or High Rise Structures?

Although most cities are seeing a race to the sky, stats show that low rise apartments, townouses and condos rose 3% to 6% over the last two years (2015 to 2017). High rise price growth during the same period has shrunk from 3% to 1%.

What About the Economic Forecast?

The US economy was forecast by some experts to crash, but that hasn’t happened. In fact, the 2019 GDP numbers, unemployment rate, job creation, and retail sales numbers are good.

Although you might be focusing solely on Texas, Florida and California, you may want to look at formerly depressed states and cities. Michigan for instance has dirt cheap properties available, perhaps perfect for investors with limited budgets. As long as you’re using a good cloud based property management software, you can manage your apartments, condos, and houses from anywhere.

Rumors: If President Trump and the Republicans are serious about bringing the auto industry back to the US, as he’s stated publicly, Michigan is the place he mentioned would benefit. Grand Rapids for instance is number one in the nation for job growth and the auto sector may be the reason why.

Contrast Grand Rapid’s job growth at 4.4% to Oklahoma city’s 1% drop and you can see how important variations are. Other cities that shone last year: Orlando (4.2%). Nashville (4%), Charlotte (3.7%) and Salt Lake City (3.7%).

Job Rates Across the States

A Breakdown of the Best Cities to Buy Rental Property


Although not perfectly scientific here’s a quick look at price/rent ratios from US cities, drawn from data from RentCafe, RentMonkey, Zillow, and other sources.

America’s smaller cities are continuing to see the greatest increases, with Gilbert, AZ (8.5%), Roseville, CA (8.5%), and Fort Collins, CO (7.9%) breaking the top 10. — from RentCafe report.

Best Cities to Buy Rental Property in 2020

Zillow reported its average home selling prices and average rent prices for cities. Of course, most investors are finding the big markets priced too high.  The real investment opportunities are in smaller cities with higher economics and population growth rates.

City Home Price Avg Rent Price Price to Rent Ratio
Detroit $34,814 $769 3.8
Cleveland $67,207 $909 6.2
Hartford $111,619 $1,303 7.1
Memphis $95,405 $921 8.6
Corpus Christi $154,450 $1,439 8.9
Milwaukee $130,188 $1,161 9.3
Lubbock $144,372 $1,266 9.5
Baltimore $148,073 $1,297 9.5
Panama City $162,738 $1,391 9.7
St Louis $124,919 $1,067 9.8
Cincinnati $161,508 $1,332 10.1
El Paso $133,856 $1,102 10.1
Aspen $1,786,530 $14,547 10.2
Indianapolis $148,858 $1,196 10.4
Houston $189,790 $1,521 10.4
Oklahoma City $137,998 $1,094 10.5
Greensboro $159,112 $1,241 10.7
Wichita $134,287 $1,034 10.8
Pittsburgh $161,240 $1,235 10.9
Fort Worth $206,558 $1,582 10.9
Columbus, OH $168,277 $1,274 11.0
Little Rock $151,528 $1,140 11.1
San Antonio $184,384 $1,382 11.1
Kansas City $157,002 $1,171 11.2
Irving $232,297 $1,719 11.3
Fort Myers $219,176 $1,619 11.3
Philadelphia $182,238 $1,339 11.3
Dallas $218,794 $1,600 11.4
Chicago $242,009 $1,769 11.4
Louisville $173,641 $1,248 11.6
Jacksonville $190,108 $1,356 11.7
Myrtle Beach $166,392 $1,180 11.8
Gainesville $198,541 $1,399 11.8
Sarasota $267,628 $1,837 12.1
New Orleans $228,780 $1,546 12.3
Orlando $247,658 $1,649 12.5
Norfolk $201,366 $1,307 12.8
Tampa $242,159 $1,561 12.9
Albuquerque $208,544 $1,319 13.2
Charlotte $245,618 $1,541 13.3
Minneapolis $282,727 $1,766 13.3
Plano $341,457 $2,130 13.4
Tucson $210,141 $1,297 13.5
Durham $246,630 $1,511 13.6
Fort Lauderdale $338,457 $2,073 13.6
Miami $366,159 $2,225 13.7
Atlanta $287,054 $1,730 13.8
Nashville $280,792 $1,674 14.0
Phoenix $259,163 $1,525 14.2
Aurora, CO $351,257 $2,049 14.3
Raleigh $283,278 $1,588 14.9
Billings $251,539 $1,381 15.2
Colorado Springs $311,380 $1,654 15.7
Sacramento $344,930 $1,832 15.7
Las Vegas $283,539 $1,504 15.7
Riverside $417,765 $2,204 15.8
Anchorage $348,730 $1,838 15.8
Austin $388,065 $1,945 16.6
Reno $385,640 $1,887 17.0
Henderson $335,791 $1,643 17.0
Denver $449,044 $2,184 17.1
Oceanside $543,719 $2,627 17.2
Santa Ana $571,514 $2,737 17.4
Scottsdale $515,143 $2,464 17.4
Anaheim $622,616 $2,852 18.2
Portland, OR $452,473 $2,070 18.2
Boston $634,481 $2,837 18.6
Los Angeles $713,600 $3,122 19.0
San Diego $645,489 $2,822 19.1
Washington $626,905 $2,713 19.3
Salt Lake City $402,581 $1,609 20.9
Irvine $869,158 $3,388 21.4
NYC $647,115 $2,467 21.9
Arlington VA $726,080 $2,761 21.9
Seattle $729,381 $2,634 23.1
San Jose $995,714 $3,550 23.4
Honolulu $703,448 $2,327 25.2
San Francisco $1,373,630 $4,312 26.5

Above data courtesy of Zillow.com Home Values

The Big Picture Investor

As you’ve seen, there is a lot of data to filter through. While you’re examining it, keep in mind the macroeconomic factors such oil prices, trade deals, interest rates, key industry growth, new construction levels, and what the top business needs of each city are. What drives the local economies? Who are the major employers?

What to buy? According to the stats, you may like to buy a low rise, 2 bedroom condo or apartment in Orlando, Austin, Detroit, Grand Rapids, Memphis, or Riverside. Are you a high stakes gambler? Then perhaps San Francisco, Los Angeles, Portland, Seattle, New York, Brooklyn, Manhattan, San Jose, San Mateo, or San Diego might be more to your liking.

Enjoy your research and please do check out ManageCasa Property Management software designed specifically for small portfolio property investors. Landlords, contractors, property managers and tenants all love using it. It’s more than a landlord app with easy to learn yet simple tools for helping you with your property management workload, manage tenants better and improve cash flow.

 

See also: Property Management Software |  Housing Market Forecast 2020 |  Denver Housing Market 2020 | Hawaii Housing Market | Berlin Property Market Outlook 2020 | Australia Housing MarketUK Rental Market |  California Housing MarketHow to Reduce Tenant Turnover | Should I Buy or Rent in 2020? | Property Accounting SoftwareProperty Management Solution | Landlord App | Property Management AppHow to Use Property Software | ManageCasa Property Software

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