Best Cities to Invest in Rental Property
Are you considering buying a new home or investing in US rental properties? Check out the stats and insights below to help in your search for the best US cities for rental properties.
The Covid 19 pandemic has brought big changes in real estate investment here in the US (and Canada, UK and Australia). 2021 is a whole new ball game for rental property investors.
The trend of buyers and renters moving to the suburbs and beyond has created a surplus of apartment buildings and units on the urban markets. And houses for rent is still the biggest trend going however we’re seeing apartment rent prices beginning to rise as the pandemic begins to die away.
There is sufficient evidence to suggest that a reverse migration back to the inner cities likely will not happen as some are hoping for. The work-at-home trend is coloring the market into 2021 and beyond. First-time homebuyers will be competing with rental property investors are looking to a whole new set of the best cities to buy rental houses and low-density units.
Demand For Rental Property
While attention has been on the new construction market and finding houses in cities in the midwest and south, there are thousands of small cities and towns that have the characteristics which today’s home buyers want.
Millennial buyers are an increasingly huge part of the buyer market. While mortgage rates are low, many are hesitant to buy based on the economy and down payments are a big stopper. Big investor funds and home rental companies are also competing for available rental properties and they have greater financial strength.
What Supports Housing Prices in 2021?
We’re not out of the pandemic crisis of course, so some of the buyer market is immobilized, which could be a short term break for you if you’re ready to buy.
- unemployment continues to improve with wages rising
- 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.
- fewer sellers are listing their homes due to uncertainty
- banks are shying away from lending to builders and multifamily developers
- the economy is recovering gradually
- rent controls in some cities/states are tainting the picture for investors and hopeful renters as it will discourage investment and construction.
Check the multifamily housing markets in 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.
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.
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:
Apartmentlist has ranked cities based on rising rents. Where rising rents occur, we know there is significant demand and in working neighborhoods.
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.
Enjoy this epic report on the state of residential rental property investment for 2021 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.
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Which Housing Data Reveals the Best Cities?
There is no oracle regarding which rental properties are best. You’ll be assessing more than cap rates, price to rent ratios, employment data, house price trends, etc. Take your time to sift through and assess regional economic conditions, demographic trends, tax conditions, residential bylaws, unit types and sizes, local business districts, 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.
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 that makes sense.
New Apartment Stock Arriving
The US needs millions of new apartments by 2030. New construction has risen but is expected to slow given material costs and labor shortages.
- growth in rental demand was largest for people with incomes lower than $25,000.
- younger renters in the US account for 4 million new renters over the past decade.
- rental grew fastest for household incomes over $50,000 (3.3 million new renters).
- 1.6 million more renters now with incomes over $100,000 a year.
- the amount of rental stock also grew (including single-family houses which are now 40% of the total rental stock)
- rental vacancy rate was less than 5% in 75% of the United States largest cities
- 89% of the biggest cities saw rents grow in January
- 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 2021
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
What Factors Rank Highest in Rental Investment Property Potential?
6 key factors to examine:
- Local economy
- Employment growth
- Wage growth
- Population growth
- Increase in home values
- 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!
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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). Renters and buyers are looking for more spacious homes with yards in secondary markets.
|Rental Unit Type||Average Rent||Change in Rent M-o-M||Change in Rent Y-o-Y|
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 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|
|Salt Lake City||$402,581||$1,609||20.9|
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.
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