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Best Cities to Invest in Rental Property

July 08, 2022

Best Places to Buy Property

In 2022, US home buyers are under pressure to find a home soon, and renters eager to find an affordable home to rent.

There are the hottest cities to buy property in to consider and we’ve got plenty of stats from reliable sources below to give you launch into your investment project.

The 2023 property market is marked by low supply, high prices, higher financing costs, big down payments, investment buyers competing, and slowed new construction.  There may be opinions about a housing downturn floating around, however it’s the shortage of available housing which may help to forecast price and revenue stability for rental properties.

Compared to stocks, the rental housing market may represent a much better long term investment strategy. And since short term profit wins are meager right now, long term investing is in vogue.  Investors are looking far and wide for the best investable properties.

And the latest NAR and Zumper stats show price growth moderating, even falling in some cities (such as in the West).   As the Covid pandemic ends, life is returning to near normal which some are returning to urban and suburban locations. Migration of all kinds is generating price waves across the country.

The surprise is that growth seems to be less positive in California, Texas and Florida, and more in states that have long been ignored including Indiana, Virginia, North Carolina, Michigan and Connecticut.  As global trade is altered, it appears these states might gain from repatriation of manufacturing back to the USA.

Opportunity for Rental Investors

With interest rates still historically low, plenty of rental property investors have cash ready to possibly buy in more viable cities where the rental property market is alive and well this year.

Investors have pulled money from the stock/bond/equity markets and do have an opportunity to invest in real estate of all kinds. From SFR to mixed Residential/Office to commercial real estate, owners will have a variety of properties for property managers to handle.

What Will Support Rental Housing in 2023?

More housing supply is coming onto the market, and while homebuyers can’t afford them, property investors can.

  • demand from renters of all kinds migrating to work, or young families who can’t buy
  • investment firms flush with cash ready to buy when prices fall
  • 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.
  • more sellers are beginning to list their homes due to uncertainty — creating rentable properties
  • banks are shying away from lending to builders and multifamily developers thus putting a roof on supply
  • the economy is recovering gradually this year into 2023 and might not be as negative as forecasted

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

NAR has provided its newest estimate for the best cities to buy in — cities where demand and price suggest strong underlying economic fundamentals.

Typically, cities such as Austin, Raleigh Durham, Nashville, Charlotte, Boston, Dallas-Fort Worth, Orlando, Phoenix, Denver, Atlanta, and even Los Angeles get the nod as best cities buy property in.

What Factors Rank Highest in Purchasing Rental Property

6 key factors to Examine:

  1. Local economy and state/city taxes
  2. Employment and wage growth
  3. Population growth
  4. Increase in home values
  5. Increase in rent prices
  6. Rental yield

NAR’s Hottest Cities List

NAR’s hottest cities list is a notable source. In the chart below (data courtesy of NAR), you can see the attractiveness rating, it’s change year over year, and interest from buyers. The price is current however they didn’t show year over price appreciation, which is important for buyers to know, as well as recent price changes.

The preponderance of mid west cities is what shows how much the US housing market has changed in 2022.

Hottest MetrosHotness RankHotness Rank YoYViewers per Property vs USMedian Days On MarketMedian Listing Price If Active Within Period
La Crosse-Onalaska, Wis.-Minnesota2132.227$349,650
Rochester, N.Y.322.123$225,450
Springfield, Ohio4332.230$167,400
Burlington, N.C.5-41.827$375,000
Portland-South Portland, Maine652.734$550,000
Monroe, Michigan7242.132$245,950
Worcester, Mass.-Connecticut.891.830$449,900
Fort Wayne, Indiana9-11.829$295,000
Springfield, Massachusetts.10111.933$344,900
Reading, Pennsylvania111221.832$264,950
Kingsport-Bristol-Bristol, Tennessee – Virginia12162.735$289,900
Johnson City, Tennessee13-93.436$382,200
Elkhart-Goshen, Indiana14-81.630$255,000
Lafayette-West Lafayette, Indiana1591.834$290,750
Columbus, Ohio1631.529$336,000
Racine, Wisconsin1717236$334,000
Providence-Warwick, R.I.-Massachusetts18351.533$474,950
Saginaw, Michigan19-11.431$174,450
New Haven-Milford, Connecticut.20491.836$359,000

 

Wallethub created an extensive of the cities with the best real estate markets, where buyer demand is brisk. They’ve ranked them on a scale in this updated interactive widget:

Source: WalletHub

ApartmentGuide published their own list of cities with the highest rent growth:

  • Las Vegas, NV (+42.1% )
  • Jacksonville, FL (+35.5%)
  • Tucson, AZ (+32.5%)
  • Santa Ana, CA (+27.3%)
  • Houston, TX (+24.3%)
  • Henderson, NV (+24.1%)
  • Winston-Salem, NC (+23.3%)
  • Irvine, CA (+23.3%
  • Reno, NV (+20.4%)
  • Aurora, CO (+19.8%)

Apartmentlist has ranked cities based on rising rents. Where rising rents occur, we know there is significant demand for rental property in working neighborhoods.

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 remote property management can be. It makes all the difference.

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

Rent Growth by City. Screenshot courtesy of Apartmentlist.

Single Family Rental Price Asked

The single family housing space still warrants a good look, however with house prices rising so quickly, it will be more difficult to find a rent to price ratio in some places including Massachusetts, New York, Texas, Washington and Florida.  This graphic shows the central or heartland is offering a stronger rent index. Visit realestateconsulting.com for deeper data on the single family rental market.

John Burns Single Family Rent Index, summer 2021 (most recent available) Best places to consider buying a rental home. Screenshot courtesy of realestateconsulting.com.

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 2022

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 still heating up:

  • prices in secondary markets rising
  • their rate of population growth was twice as fast as major markets
  • their job growth was more than double
  • population is younger and Millennials and GenZ are the new market
  • millennials desperate for accommodation, particularly house and townhouses
  • property has been appreciating much faster
  • offer more affordable living for young renters
  • southern US cities are where the growth is in 2020

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.

 

National Rent Growth Top Cities

Do these cities make the best cities to buy property?  Those who were paying attention to our reports in the last 4 years, are reaping the rewards. Just the shear rent growth in these major cities makes them attractive for buyers.

CityPriceM/M%Y/Y%PriceM/M%Y/Y%
(Courtesy of Zumper)1 Bedroom2 Bedrooms
Orlando, FL$1,6300.60%25.40%$1,9103.20%35.50%
Miami, FL$2,4203.40%34.40%$3,2203.90%34.20%
St Petersburg, FL$1,470-2.00%22.50%$2,120-3.20%34.20%
Las Vegas, NV$1,2500.80%25.00%$1,6004.60%33.30%
Fort Lauderdale, FL$1,880-3.10%10.60%$2,9003.20%32.40%
Tampa, FL$1,6000.60%28.00%$1,8502.20%32.10%
New York, NY$3,100-4.90%26.00%$3,300-2.90%29.40%
Seattle, WA$1,730-4.90%15.30%$2,5700.00%29.10%
Glendale, AZ$1,2000.00%29.00%$1,4802.80%26.50%
Knoxville, TN$1,0800.90%30.10%$1,2904.00%26.50%
Anaheim, CA$1,8805.00%11.90%$2,5205.00%26.00%
Tucson, AZ$8804.80%20.50%$1,2000.80%25.00%
Austin, TX$1,5500.00%30.30%$1,910-1.00%24.00%
Boston, MA$2,700-0.70%31.70%$3,090-1.90%23.60%

 

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!

 

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Job Rates Across the States

 

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.

 

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. Will rent prices fall in these cities? Some of them could see strong downward trends (oil prices) while some cities will enjoy strong growth due to economic shifts.

Best Cities to Buy Rental Property in 2022

CityCity RatingAffordability and EconomicAverage Apartment Rent PriceHome PriceYoY Home Price ChangeAverage Household Income
1Frisco, TX75.111,758620,92136.0%$127,055.00
2Austin, TX73.1561,690639,83941.0%$75,413.00
3Gilbert, AZ72.7211,814547,77732.0%$96,857.00
4McKinney, TX71.741,624492,04837.0%$93,354.00
5Denton, TX71.5931,758351,00024.0%$60,018.00
6Allen, TX69.4151,638489,00035.0%$105,925.00
7Durham, NC68.9161,432371,00032.0%$65,534.00
8Reno, NV68.3108$1,557$549,52726.0%$58,790.00
9Roseville, CA68.0382,164642,87822.0%$89,082.00
10Nashville, TN67.6371,644404,94526.0%$86,035.00
11Boise, ID67.651,554523,76027.0%$60,035.00
12Cary, NC67.361,523547,00132.0%$104,669.00
13Murfreesboro, TN66.42136938800033.0%$57,753.00
14Spokane Valley, WA66.1301,351402,68727.0%$59,646.00
15Vancouver, WA65.6541,569486,71922.0%$61,714.00
16Hillsboro, OR65.4321,882523,50920.0%$82,275.00
17Chandler, AZ65.3881,823498,67729.0%$83,709.00
18Seattle, WA65.2632,197915,34013.0%$102,486.00
19Peoria, AZ65.1871,665457,27331.0%$75,323.00
20Surprise, AZ65.0621,772424,27133.0%$69,076.00
21Beaverton, OR64.81031,643539,69921.0%$71,806.00
22Salt Lake City, UT64.8271,478583,85823.0%$80,196.00
23Clovis, CA64.7141,461482,05622.0%$77,904.00
24Longmont, CO64.71591,706551,75223.0%$74,242.00
25Colorado Springs, CO64.6531,473461,66826.0%$58,158.00
26Fort Worth, TX64.61061,303292,55227.0%$65,356.00
27Arvada, CO64.4981,678625,51123.0%$89,523.00
28Mesa, AZ64.11071,479405,72329.0%$63,836.00
29Irvine, CA63.7672,9011,159,14323.0%$91,999.00
30Santa Clara, CA63.72342,8141,631,90415.0%$133,076.00

The Big Picture Property 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?

2022 is definitely a year of keen interest in the best cities for property investors.

Enjoy your research for the best places to buy rental property. It’s a major pursuit of landlords and even property management companies are now buying rental properties.

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