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Best Cities to Invest in Rental Property

Best Cities to Invest in Rental Property 2018 2019

It’s 2018 and the US has become a renter nation. That makes this the best era for buying rental income real estate, an asset which actually pays you for owning it. Enjoy this epic report on the state of residential rental property investment for 2018/2019 and the best cities to buy rental property.

US property prices are too high for most buyers, particularly millennials, and housing availability is squeezed everywhere. Interest rates remain low and tax advantages are still positive.  And that creates a need for rental property.

It’s a big money making opportunity for investors like you to grow your investment income by buying more of the best available apartments, houses or condos. Of course, from your 1st property to your 50th, you’ll need a good plan to find properties in the best cities, and then assess their  cash flow and capital gains potential.

New Construction Apartment Condominiums are in demand

Which Housing Data Reveals the Best Cities?

You’ll need to sift through and assess regional economic conditions, demographic trends, unit types and sizes, employment rates and other data to identify the best city for you. There are city ratings related to lifestyle and livability that may weigh on your final decision.

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.

If you believe rental property investing is for you, then all you have to do is find the properties with the best ROI. Top returns are more likely in hot US cities where the economy, in-migration and technology are drawing investment dollars and creating employment or business opportunities.

Of course, there are some surprise cities with property having net positive cash flow rising above 10%. And each has its own property price appreciation trends to consider. It’s not an easy choice, especially for a first time property investor. Take your time and have fun with it.

Rental Market Remains Solid for Investors

Although rental prices are flattening overall in the country, the lack of housing will ensure continuous upward price pressure till 2020. Rents have risen strongly up to an average of near $1500 per month, up 40% from 4 years ago. According to census.gov the apartment vacancy rate across the US is 6.9% yet in the west it’s 4.5%.

The number of renter households in the U.S. increased by 19.2% between 2005 and 2016, from under 37 million to nearly 45 million — excerpt from Multifamilyexecutive.com

Screen Capture courtesy of Statista

New Apartment Stock Arriving

New construction won’t meet demand, however invetors will have more new stock to choose from in high employment regions.

Chart Courtesy of RealPage.com

Developers plan 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

More Promising 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

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What Shifting Demographics and US Economics Mean for Investors

There is a big renter demographic shift going on in America. Texas, Washington, California, Florida are attracting new residents looking for jobs and career opportunities. Other states are losing residents. There are more jobs, better quality lifestyle, higher wages, and a thriving business sector in some of the cities you’ll see below which make them ideal for rental property investors.

However, you’ll see in the list below that other cities rate highly as well.

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!

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 is expected to roll along well, or perhaps overheat due to new goverment infrastructure spending being funded by new government bonds being issued.

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 Growth Across the Major US Cities

Southern Cities Growing Quickly[Source: U.S. Census Bureau]

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.

Rent to Price Ratio – Higher is Better
City Rent to Price
Ratio
Home Price Average Rent Price
Detroit, Michigan 2.30% $44,400 $1,001
Cleveland, Ohio 1.70% $61,200 $1,012
New York, New York 1.30% $307,800 $4,079
Buffalo, New York 1.20% $81,500 $1,016
Toledo, Ohio 1.10% $63,100 $675
Philadelphia, PA 1.00% $144,600 $1,499
Milwaukee, Wisconsin 1.00% $111,500 $1,103
Baltimore, Maryland 1.00% $125,000 $1,229
Memphis, Tennessee 0.90% $82,000 $741
Pittsburgh, Pennsylvania 0.90% $130,400 $1,142
Mesa, Arizona 0.90% $230,200 $1,995
Chicago, Illinois 0.80% $221,000 $1,782
Corpus Christi, Texas 0.80% $121,848 $970
Orlando, Florida 0.70% $175,700 $1,312
Louisville, Kentucky 0.70% $119,500 $888
Kansas City, Missouri 0.70% $127,400 $943
Cincinnati, Ohio 0.70% $130,500 $936
Fort Wayne, Indiana 0.70% $103,300 $726
St. Paul, Minnesota 0.70% $196,600 $1,355
St. Louis, Missouri 0.70% $127,800 $879
st louis, missouri 0.70% $127,800 $879
Jersey City, New Jersey 0.70% $428,200 $2,822
Dallas, Texas 0.70% $176,300 $1,148
El Paso, Texas 0.60% $115,400 $747
Columbus, Ohio 0.60% $138,100 $878
Greensboro, North Carolina 0.60% $132,100 $839
Fort Worth, Texas 0.60% $166,192 $1,045
Fort Lauderdale, Fl 0.60% $293,200 $1,832
New Orleans, Louisiana 0.60% $174,600 $1,089
Tampa, Florida 0.60% $196,300 $1,217
Jacksonville, Florida 0.60% $160,700 $994
Atlanta, Georgia 0.60% $217,600 $1,340
Minneapolis, Minnesota 0.60% $242,500 $1,478
Tulsa, Oklahoma 0.60% $115,500 $678
San Antonio, Texas 0.60% $168,500 $977
Charlotte, NC 0.60% $198,700 $1,145
Boston, Massachusetts 0.60% $568,300 $3,248
Durham, North Carolina 0.50% $196,000 $1,077
Oklahoma City, OK 0.50% $132,500 $727
Lincoln, Nebraska 0.50% $167,300 $913
Omaha, Nebraska 0.50% $161,000 $874
Miami, Florida 0.50% $306,000 $1,610
Lexington, Kentucky 0.50% $168,800 $873
Nashville, Tennessee 0.50% $244,800 $1,262
Wichita, Kansas 0.50% $124,300 $633
Raleigh, North Carolina 0.50% $229,000 $1,119
Raleigh, North Carolina 0.50% $229,000 $1,119
Newark, New Jersey 0.50% $241,100 $1,153
Tucson, Arizona 0.50% $172,500 $799
Albuquerque, New Mexico 0.40% $187,300 $841
Virginia Beach, Virginia 0.40% $258,700 $1,152
Fresno, California 0.40% $222,800 $984
Aurora, Colorado 0.40% $300,200 $1,279
Bakersfield, California 0.40% $221,300 $932
Phoenix, Arizona 0.40% $223,700 $934
Sacramento, California 0.40% $314,300 $1,294
Sacramento, California 0.40% $314,300 $1,294
Las Vegas, Nevada 0.40% $239,500 $974
Colorado Springs, Colorado 0.40% $263,700 $1,072
Chandler, Arizona 0.40% $288,200 $1,163
Las Vegas, Nevada 0.40% $239,500 $964
Riverside, California 0.40% $363,300 $1,440
Stockton, California 0.40% $274,000 $1,086
Austin, Texas 0.40% $333,900 $1,305
Denver, Colorado 0.40% $393,900 $1,530
Henderson, Nevada 0.40% $297,000 $1,152
Washington, District of Columbia 0.40% $545,400 $2,085
Plano, Texas 0.40% $337,400 $1,256
Anchorage, Alaska 0.40% $298,300 $1,078
Salt Lake City 0.38% $295,200 $1,116
Portland, Oregon 0.30% $407,500 $1,425
Oakland, California 0.30% $729,200 $2,545
Santa Ana, California 0.30% $526,500 $1,829
Los Angeles, California 0.30% $658,500 $2,284
San Diego, California 0.30% $601,200 $2,069
Chula Vista, California 0.30% $509,300 $1,650
Honolulu, Hawaii 0.30% $686,900 $2,222
Long Beach, California 0.30% $578,500 $1,860
Scottsdale, AZ 0.30% $435,800 $1,320
Houston, Texas 0.30% $358,176 $1,070
Anaheim, California 0.30% $580,600 $1,720
Seattle, Washington 0.30% $718,700 $1,971
San Francisco, California 0.30% $1,293,600 $3,430
San Jose, California 0.30% $1,007,400 $2,620
Santa Clara, California 0.20% $1,288,500 $2,697
Indianapolis, Indiana 0.20% $395,680 $816
San Mateo, CA 0.20% $1,484,250 $3,050
Sunnyvale, CA 0.20% $1,765,700 $2,739
Arlington, Texas 0.10% $649,700 $966

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: Toronto Housing Market | Toronto Condo PricesAustralia Housing MarketUK Rental Market | California Housing Market |   Apartments for RentRenters Insurance2018 Rental Housing Market | How to Reduce Tenant Turnover | Should I Buy or Rent in 2018?Property Management Solution | Tenant Screening | Raise Rent to Improve Property Revenue | Improve Property Cash Flow | Property Management Issues | Tax Savings for Property Managers | Real Estate Portfolio Tips | Starting a Property Management Business | How to Use Property Software | ManageCasa Property Software

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