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Best Cities to Invest in Rental Property

March 08, 2022

Best Places to Buy Rental Property

In 2022, US home buyers are under pressure to find a home soon.  Many will not because of low supply, high prices, high financing costs, big down payments, and since more buyers are investors. Competition is intense.

And rental property investors are also forced to look widely for the best places to buy a rental property.  With unemployment rates dropping, wages rising, overall rents rising, and big demand, houses in particular are in demand as investment properties.

Work from home, rising wages, low supply in the housing market and millennials raising families means houses are in demand as best kinds of investment properties.  Investors are looking into the best places to buy those rental houses. For some, property investment is a bit of a hobby, but researching the best cities, states, and property types is wise.

 

Definitely share our posts and material with your friends and business partners.  There are excellent opportunities in real estate and for investors and new rental management companies. And whether it’s vacation properties or long term rental leasing, owners see how great property management software helps them turn a profit.

 

Is There a Best Place to Buy Investment Property?

The best/ideal place or city really depends on your investor profile.  There are a lot of factors, and you should be keeping a close on the economic and housing forecasts for any city, state or country you’re hoping to purchase a rental property. You can quantify and assess your risk.

On that note, we’re providing a look at some of the best cities, with comparisons of different stats providers. Of course, Texas and California come out as ideal locations with some of the top cities for rental potential.  And there are indications the California housing market is beginning to stir.

Exodus from Urban Housing Markets

NAA Apartmentalize

NAA Apartmentalize 2022 in San Diego

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.

There is sufficient evidence to suggest that a reverse migration back to the inner cities likely will not happen at the pace some multifamily and commercial landlords are hoping for. And preference for renters and home buyers is in the suburbs of many big and medium sized metros. Migration is strong with many renters/homeowners fleeing the high tax states and cities.

Eager home buyers are heating up housing market, from California, to Texas and Hawaii, to Colorado and Florida.  The same is happening in Germany, Australia and the UK.

Demand For Rental Property

While attention has been on the new construction market and finding houses to invest in, within cities of the Midwest and South, there are thousands of small cities and towns experiencing growth.  They may have a more affordable price point for rental investors.

What Supports Rental Housing Prices 2022?

As the pandemic eases, more supply will come onto the market. Some sellers will see this as the peak of the market while others hope babyboomers will finally be giving up their long time house.

  • unemployment continues to improve with wages rising
  • home loans rates are still at historic lows
  • 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
  • banks are shying away from lending to builders and multifamily developers
  • the economy is recovering gradually this year into 2023

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. Please see our property management book post for books about how to buy property.

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

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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