Best Places to Buy Property in 2023
Investors are returning to the market this spring, and are considering what the best properties might be and which states and cities they might be found in.
Reports in general (some below) show property prices are dropping (some states/cities are enjoying booming growth in yields) and it may be time to start your buying research now. If the Fed puts the brakes on rate hikes, we might see a renewed interest in rental property investment this year.
Informal research sources are coming up with some of the best cities to buy property, while more formal studies such as the one from AttomData below (SFR segment) present another unique angle for real estate rental market investors.
San Francisco, Austin, Charlotte, Atlanta, New Jersey, and Nashville for example had offered yield potentials given most of them are rental dominant cities. Yet, the economy has changed and a new set of conditions favor some cities and states more than others.
AttomData’s Latest SFR Rental Market Report
ATTOM Data is a leading provider of nationwide property data (i.e., single family homes). It provides information via cloud real estate data on more than 155 million U.S. properties. It’s valuation system draws on an extensive, granular set of housing market conditions, which you can view at Attomdata’s website.
It’s most recent report entitled Q1 2023 Single-Family Rental Market report, ranks the best U.S. markets for buying single-family rental properties this year.
The report shows that for the 3 bedroom single family market, rent yields are increasing from 2022 to 2023 in 91% after declines in most during 2022. Good times are here but not necessarily for all cities.
They discovered rents are increasing faster than home prices (3-bedroom rents rose more in 91% across the US). And rents have risen by around 5% to 20% during the past year. It seems it was hard for property investors to lose.
Fast forward to spring 2023, and some cities are excelling while others have red flags. AttomData reports that:
Counties with the highest potential annual gross rental yields for 2023 are:
- Indian River County, FL, (Sebastian-Vero Beach) area (15%)
- Collier County, FL, (Naples area at 14.7%)
- Wayne County, MI, (Detroit area (13%)
- Mercer County, New Jersey, (Trenton area (12.7%)
- Charlotte County, FL, (Punta Gorda area) (12%)
- Cook County (Chicago), IL (11.5%)
- Cuyahoga County OH (Cleveland) (10.1%)
- Oakland County, MI (outside Detroit) (9.1%)
- Palm Beach County FL (West Palm Beach) (8.5%)
60% of top performing counties are in the south, and many in Florida. While none are in the West including (California), although as you’ll see some cities in California have the highest growth in yields.
Everyone watches trends in the rental markets and they found these with highest growth rates:
- Orange County, CA (outside Los Angeles) (+42.7%)
- San Mateo County, CA (+41.6%)
- Suffolk County (Boston), MA (+41.2)
- New Castle County (Wilmington), DE (+40.5%)
- San Francisco County, CA (+38.1%)
Despite all the turbulence and costs in Silicon Valley, rental property still performs.
Other counties with high growth rates are:
- Miami-Dade County, FL (+34.1)
- Broward County (Fort Lauderdale), FL (+32.4T)
- Santa Clara County (San Jose), CA (+30.1%)
- Palm Beach County (West Palm Beach), FL (+29.5%)
Despite the above stats and trends, there were sizable decreases in potential gross rental yields in:
- St. Louis County, MO (-19.8%)
- Nassau County, NY (-2.2%)
- Collin County (Plano), TX (-.4 %)
68% of low performing counties are in the West.
The hot cities tell us a lot about market momentum for each state. And the outlook for renters can help home buyers too evaluate the real potential of the community and properties there.
Cities, States, Economic Trends
Getting back to basics about the macroview on what are the best rental properties to buy is wise. A study of the US economy and each state’s outlook is a good starting point. No point buying in areas sure to suffer in a downturn, especially as taxes rise. See key factors below.
Key factors affecting the migration to the growing cities is about the end of Covid and inner city crime fears, head office restarts, apartment vacancy rates in cities, growth of renting overall, and unaffordability of single family homes in the burbs.
Offices are being converted to residential multifamily and apartment units. Investors are still keen, although some overleveraged multifamily firms are opening to sell their low performing units. For the average independent home buyer or rental investor, it might be an opportunity.
Unemployment rates are a factor in your purchase decision. Forbes reports the cities with the lowest unemployment rates are Madison, Wisconsin (1.6%), Columbia, Missouri (1.7%), and Decatur, Alabama; Fond du Lac, Wisconsin; Hunstville, Alabama; Logan, Utah; and Sheboygan, Wisconsin, all with a low rate of 1.8%.
Property Prices in some States Still High
The fact is, owners aren’t listing properties as hoped for and sellers still want a hefty asking price. Single family homes are still in demand as prices have risen. Just check out the California market.
Low taxes and low prices were a draw yet, yet even the up and coming states such as Pennsylvania, Tennessee, Arkansas, Georgia and South Carolina as an example will run out of supply and their prices will rise.
Now as mortgage rates hit their peak, buyers and investors are intrigued about the 2023 market being ready. Yet, only certain cities rank as desirable. See those ideal cities below.
Hottest Cities To Buy (See cities below)
Below, you’ll find the hottest cities to buy rental property (stats from NAR, Zumper and Apartmentlist).
The 2023 property market is still 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.
Texas was last year’s hottest real estate market for prices and yields. Despite all that’s happened, it is holding its own. The state’s diverse economy and strength in key commodities is ensuring its promise for years to come.
States that are drawing interest in buyers also include 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.
What Will Support Rental Housing Profitability 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.
What Factors Rank Highest in Purchasing Rental Property
6 key factors to Examine:
- Local economy and state/city taxes
- Employment and wage growth
- Population growth
- Increase in home values
- Increase in rent prices
- 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.
NAR’s Hottest Markets
|Hottest Metros (data courtesy of NAR)||Hotness Rank||Hotness Rank Change YoY||Viewers per Property vs US||Median Days On Market||DOM YoY||Median Listing Price (rounded)|
|Manchester-Nashua, New Hampshire||1||0||2.7||44||7||$495,000|
|Rochester, New York||2||-1||2.4||44||5||$237,000|
|Providence-Warwick, Rhode Island||8||-32||1.8||47||-3||$470,000|
|Milwaukee-Waukesha-West Allis, Wisconsin||11||-188||1.7||50||-16||$375,000|
AparmentList’s Fastest Growing Rents
ApartmentLists’ most recent report shows the cities with fastest growth over the last 12 months are Indianapolis (+6%), Columbus OH (+6%), Oklahoma City (6%), Hartford (5%), Chicago (6%), Cincinnati (6%). Since the beginning of the pandemic, Tucson AZ rents have risen 37% while Tampa Florida rent growth is also up 39%.
Information is as of March 2023.
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:
Hottest Cities: Highest Rent Growth
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%)
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.
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.
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.
- 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.
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.
|(Courtesy of Zumper)||1 Bedroom||2 Bedrooms|
|St Petersburg, FL||$1,470||-2.00%||22.50%||$2,120||-3.20%||34.20%|
|Las Vegas, NV||$1,250||0.80%||25.00%||$1,600||4.60%||33.30%|
|Fort Lauderdale, FL||$1,880||-3.10%||10.60%||$2,900||3.20%||32.40%|
|New York, NY||$3,100||-4.90%||26.00%||$3,300||-2.90%||29.40%|
Sharing is Good for Your Social Health
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
|City||City Rating||Affordability and Economic||Average Apartment Rent Price||Home Price||YoY Home Price Change||Average Household Income|
|14||Spokane Valley, WA||66.1||30||1,351||402,687||27.0%||$59,646.00|
|22||Salt Lake City, UT||64.8||27||1,478||583,858||23.0%||$80,196.00|
|25||Colorado Springs, CO||64.6||53||1,473||461,668||26.0%||$58,158.00|
|26||Fort Worth, TX||64.6||106||1,303||292,552||27.0%||$65,356.00|
|30||Santa Clara, CA||63.7||234||2,814||1,631,904||15.0%||$133,076.00|
Best States to Invest in Rental Properties
Now that we’ve reviewed the top cities for buying rental real estate, let’s take a quick look at which states might be the ideal targets for your capital investments.
There’s a lot to consider in selecting states, yet the key criteria would be capital appreciation, rental supply, state taxes, and absence of rent controls.
State of Florida
From Jacksonville to Miami to Tampa over to Panama City, Florida has infinite attractions, land, and is landlord and business friendly. There are no rent controls in the state, rent prices are rising, and the vacancy rate is at its lowest ever.
- no income tax
- no estate tax
- write off most expenses
- rising population
- strong economy
- high demand for short term rentals
- favorite destination for seniors
- plenty of property management firms
- capital appreciation
- strong rent growth
State of Texas
The Lone Star State is enjoying significant growth and prosperity as a business and landlord friendly state with a fast growing population of renters. Construction of multifamily and single family homes will rise given the overwhelming number of illegal immigrants invading the state in 2023.
benefits of owning rental property include deducting operating and owner expenses, depreciation, capital gains tax deferral, and avoiding FICA tax.
Given the demand for rentals in the major cities of Fort Worth, Austin, Dallas, Houston and San Antonio, they might be the ideal place to buy rental property.
- fast rising population growth
- booming diverse economy
- growing tech and aeronautics industry
- landlord friendly with no rent controls
- no income tax for property investors
- housing is economically priced
- rents are rising
- cost of living is lower making rent payment easier
State of North Carolina
One of the fastest growing states flush with newcomers who seek the quiet life and the low price of real estate.
- no rent controls
- low costs of property
- lower investment taxes
- no capital gains tax under $250,000 profit
- possible no federal taxes on capital gains
- low transfer taxes
- property taxes can be deducted from income tax owed
State of Georgia
The State of Georgia is attracting new residents and investors with its low cost business environment. The state is business and landlord friendly.
- no state tax
- low income tax
- low property prices
- no estate tax under $11.7 million
- rate of in-migration is very high vs most states
- capital appreciation is good (about 9%)
- strong demand for the supply of rental properties
Other top rated states in include South Carolina, Tennessee, Nevada, Utah, Arkansas, Arizona and Idaho.
The Big Picture Property Investor
As you’ve seen, there is a lot of data to filter through and prices will change in 2023. 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 as big companies are laying off workers?
2023 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.
* This report is not intended as specific investment advice or recommendation of any rental property. Readers are advised to use this as a starting point in developing your short list of ideal cities and neighborhoods to buy property.
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