Best US Cities to Buy Rental Income Properties

Best US Cities to Buy Rental Income Properties

Which are the Best Cities to Buy Real Estate?

Prices in the housing markets in America have flattened out this winter. That’s good news for buyers. In fact, for rental property investors, some believe you can’t lose with rental property, no matter which way the economy goes. 

When you add the Fed’s new dovish interest rate intent, lower inflation, banks wanting to lend, and trade talks going well, 2019 might be the best time to buy a house, condo, or invest in income rental properties. Best to choose soon, before prices rise. 





And choosing the right city is still very important if capital appreciation, cash flow, and ROI are what you’re hoping for.

Are prices too high in your Florida, Seattle New York, or California community?  Then find hundreds of other high potential cities enjoying excellent growth right here.

Stressed out renters in Los Angeles, San Jose, and San Francisco are migrating inland in search of homes or apartment rentals.


You’ll find the cities with the best price to rent ratios below, but there’s much more to consider. Use a spreadsheet to review each of the factors.

The Wealth Network says the ideal cities that offer the best cash flow and equity growth often have three things in common: job growth, population growth and affordability.

What to Look for in the Best City to Buy Income Real Estate:

  1. lowest vacancy rate
  2. rising working age population
  3. rising developments
  4. lowest price to rent ratios
  5. rising number of millennials or baby boomer retirees
  6. growing economy
  7. good metro GDP
  8. lots of US based companies
  9. local restrictions on new construction
  10. located in the heartland or south region
  11. lower purchase prices
  12. lower property taxes
  13. lower state taxes




Which cities and states offer the best employment outlook, lowest taxes, fewest regulations, large millennial population, and a pro business climate? Florida, California, Michigan, Colorado, Miami FloridaBoston, Bay Area, New York , Massachusetts, or is it Ohio and Michigan? See Landlordology’s list of state regulations before buying a home or multifamily portfolio.

Your first thought on income properties is California, yet migration is outward into Arizona, Texas, Nevada, Colorado and even Oregon.  The lower cost of doing business, lower taxes, and lower residential property price savings in other states is substantial. A growing number of sellers in the Bay Area are selling while prices are good.

Dallas, Houston, Austin, San Antonio and Fort Worth are getting special attention these days. Texas is growing and Austin has become a tech hub. Michigan has huge potential. Businesses are relocating to these cities for a lot of reasons.

Danger Signals for Buyers

The US trade situation is foremost to consider.  A global recession would impact the US short term which is why President Trump is talking with China. If he protects US business, then heartland cities will continue their growth and the overheated markets may cool.

High oil prices, rising interest rates, stock market crashes, can all dry up jobs and create rental vacancies.

In this era of investment, the best property investments may be in other cities. Even if you intend to stay close to home, knowing what’s going on in other states might provide a superior return on investment.

2017: Record Demand for Home, Condo and Apartment Rentals

And while 30% to 40% returns aren’t the norm anymore, the stock market and economy could return to their heights of 1 year ago. The demand for rentals is still intense as the housing supply problem hasn’t been solved. And there are few signs of booming construction to ease the problem in many regions.

 

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Where Are the Renters?

As mentioned, they’re in California, New York, Florida, Texas, Arizona, and California. Small cities are gaining mention. Here’s some small cities selected as excellent by Millken Institute:

  1. Bend-Redmond, OR
  2. St. George, UT
  3. Gainesville, GA
  4. San Rafael, CA
  5. Wenatchee, WA
  6. Elkhart-Goshen, IN
  7. Yuba City, CA
  8. Bellingham, WA
  9. Columbus, IN
  10. Auburn-Opelika, AL

And Milliken chooses their top 10 Big Cities:

  1. Provo-Orem, UT
  2. Raleigh, NC
  3. Dallas-Plano-Irving, TX
  4. San Francisco-Redwood City-South San Francisco, CA
  5. Fort Collins, CO
  6. North Port-Sarasota-Bradenton, FL
  7. Orlando-Kissimmee-Sanford, FL
  8. Nashville-Davidson-Murfreesboro-Franklin, TN
  9. Austin-Round Rock, TX
  10. Salt Lake City, UT

Renter Statistics:

  • Growth in rental demand was largest for people with incomes lower than $25,000; a group that accounted for four million new renters over the past decade.
  • Growth for people with household incomes over $50,000 accounted for 3.3 million new renters.
  • There was an increase of 1.6 million renters for those with incomes over $100,000 a year.
  • The amount of rental stock also grew, and the single-family house share of the market increased from 34-40% of the total rental stock
  • Vacancy rate was less than 5%  in 75% of the United States largest cities by 2015. 





Houses for Sale – The Ultimate Home Search Source

With crazy high ROI, we’ll see rental income investors and developers race into these regions to build new properties. It’s a great investment situation for Americans, investors and realtors.




San Francisco is one area however that might not benefit. Its strong economy is driven by large tech corporations that add value to imported technology and products manufactured in China. Which is why Silicon Valley is hostile to Trump. California’s economic outlook is still very bright, but it’s low potential rental income outlook could send investors over to other US cities to invest in, such as those in green areas in the charts below.

Rental Income Property Investment Opportunities

With or without Trump, the US economic outlook is good. The outlook for rental income property is exceptional. Realtors and investment advisors should be looking hard at this market. Even baby boomer investors are looking at the potential of retirement income. Many baby boomers are a little nervous about how they’ll fund their “stay put” retirement plans.

They’ll need extra income to stay put and revamp their home over the next 30 years, and they may look to rental income to get that money.  A percentage may just sell their home and leave it to a developer/investor to turn it into the multi-family unit. That investor might be you.

Here’s Realty Trac’s outlook on the best US cities to invest for rental property income

usheatmap-rental-roi

Complicating your investment decision is another set of statistics from Realty Trac that shows the west still has the highest returns currently but the green zones are predicted to perform better.

best-rental-income-cities

Screen capture Courtesy of Realty Trac

How about a 32% Yield on a Single Family Home?

best-rental-income-cities-by-revenue

(Screenshot above courtesy of RealtyTrac single family rental market reports)



Top 80 Cities and their Potential for Passive Rental Income ROI

These converted stats in this chart from Smart Assets are very insightful. They used U.S. Census data, to calculate the price-to-rent ratio in every U.S. city with a population over 250,000. This is their list of 80 US cities below with the worst potential for rental property income investment appearing at the top (The ones at bottom such as Detroit have better potential, unless employment fails to recover in Michigan).

US Cities with Population above 250k Price-to-Rent Ratio

Home Price

(for a $1,000 Rental)

1 San Francisco, California 45.9 551000
2 Honolulu, Hawaii 40.1 481000
3 Oakland, California 38.5 462000
4 Los Angeles, California 38.0 456000
5 New York, New York 35.7 428000
6 Seattle, Washington 35.1 421000
7 San Jose, California 34.7 417000
8 Long Beach, California 34.6 415000
9 Washington, District of Columbia 32.0 384000
10 Anaheim, California 31.3 375000
11 San Diego, California 30.3 363000
12 Portland, Oregon 29.3 351000
13 Boston, Massachusetts 28.7 344000
14 Jersey City, New Jersey 26.3 316000
15 Denver, Colorado 26.0 312000
16 Chula Vista, California 25.8 310000
17 Santa Ana, California 25.3 303000
18 Sacramento, California 24.3 291000
19 Miami, Florida 23.4 280000
20 Austin, Texas 23.4 280000
21 Atlanta, Georgia 23.0 276000
22 Colorado Springs, Colorado 22.8 274000
23 Bakersfield, California 22.5 270000
24 Raleigh, North Carolina 22.4 269000
25 Riverside, California 22.4 268000
26 Lexington, Kentucky 22.0 264000
27 Albuquerque, New Mexico 21.9 263000
28 Chicago, Illinois 21.6 259000
29 Henderson, Nevada 21.6 259000
30 Chandler, Arizona 21.5 257000
31 New Orleans, Louisiana 21.4 256000
32 Virginia Beach, Virginia 21.1 253000
33 Fresno, California 21.0 252000
34 Newark, New Jersey 21.0 251000
35 Minneapolis, Minnesota 21.0 252000
36 Anchorage, Alaska 20.9 251000
37 Phoenix, Arizona 20.3 244000
38 Louisville, Kentucky 20.1 241000
39 St. Paul, Minnesota 20.0 239000
40 Plano, Texas 19.9 239000
41 Stockton, California 19.5 234000
42 Durham, North Carolina 19.5 233000
43 Las Vegas, Nevada 19.3 232000
44 Nashville, Tennessee 19.1 230000
45 Greensboro, North Carolina 19.1 229000
46 Mesa, Arizona 19.1 229000
47 Lincoln, Nebraska 19.1 229000
48 Oklahoma City, Oklahoma 19.1 229000
49 Wichita, Kansas 18.4 221000
50 Charlotte, North Carolina 18.1 217000
51 Cincinnati, Ohio 18.0 216000
52 Aurora, Colorado 18.0 216000
53 Kansas City, Missouri 17.4 209000
54 Tulsa, Oklahoma 17.2 206000
55 Omaha, Nebraska 16.7 200000
56 St. Louis, Missouri 16.7 200000
57 Orlando, Florida 16.6 199000
58 Tampa, Florida 16.6 199000
59 Tucson, Arizona 16.3 196000
60 Philadelphia, Pennsylvania 16.3 196000
61 Dallas, Texas 16.2 194000
62 Laredo, Texas 15.9 191000
63 Columbus, Ohio 15.9 190000
64 St. Petersburg, Florida 15.8 189000
65 Fort Wayne, Indiana 15.5 186000
66 Baltimore, Maryland 15.5 186000
67 Arlington, Texas 15.5 186000
68 El Paso, Texas 15.4 185000
69 Indianapolis, Indiana 15.4 184000
70 Houston, Texas 15.3 183000
71 Fort Worth, Texas 14.8 177000
72 Jacksonville, Florida 14.3 172000
73 Milwaukee, Wisconsin 14.2 170000
74 San Antonio, Texas 13.7 164000
75 Toledo, Ohio 13.3 159000
76 Corpus Christi, Texas 13.1 158000
77 Memphis, Tennessee 12.3 147000
78 Pittsburgh, Pennsylvania 12.0 144000
79 Buffalo, New York 10.7 128000
80 Cleveland, Ohio 10.5 126000
81 Detroit, Michigan 6.3 75000




What About the Local Economies?

Last year’s report from Millken research reveals the cities with the best performing economies in 2015. This was put out in December 2016.  Florida cities are showing a marked rise. Recent reports focus on the apartment rental prices in San Francisco, Sacramento, and San Jose as offering outstanding returns for investors.

Chart courtesy of Milken Best Cities Report 2019

 

Chart courtesy of Milken Best Cities Report 2019

And this is Milken’s list of worst performing cities, likely the ones you might avoid.

worst-us-city-economies-ranking

In this video below, Mike Hambright talks about apartment rental markets, and how to make money from cash flow and property value appreciation.




 

There are so many real estate investment opportunities in the US and in Canada too. Hopefully, my amateur US housing forecasts, predictions and unguaranteed advice will help you find those opportunities for the best upside in cash flow, safety and equity appreciation. Be careful with any investment. Do your due diligence. 

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There are 7 comments for this article
  1. R at 3:17 am

    Decent article, all except for the political comment about how Trump will almost certainly be elected. Your choice to place that in the article betrays your contempt for your reader and your stance against human rights. Sickening.

    • Kyle at 8:45 pm

      Well…Trump was most certainly elected, so it actually proves that this author has incredible foresight. I would trust whatever he says about investment markets because of that gutsy call back in late October / November, when everyone was saying Clinton had a 70% chance of winning. Now it is time to make America Great Again. That’s all….

  2. Rodd at 9:44 pm

    I think it would be helpful to incorporate the impact of rent control coming into numerous markets in California. The SEIU is trying to get the most stringent rent control measures on 17 different municipalities this year. Rent control will dampen your returns as elected or appointed boards will be allowed to set rates for new projects and regulation will stifle annual increases to cpi. In Sacramento, the measure would actually be appended to the City charter.

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