Just like all real estate investments, the success of a rental property depends on location. The location could be the difference between a profitable venture and losing half your savings. Not only do you have to figure out the best location, but you also have to continuously monitor it. With the coronavirus pandemic, the real estate market has been volatile and this holds for the rental market. With remote jobs and a shift away from urban downtown areas, tenants are adapting their preferences to better suit current circumstances. Instead of looking at dense cities for your next rental property investment, you should look to high-growth areas with low costs. With that said, here are the four best cities for investing in rental properties.
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Atlanta, Georgia
Atlanta’s housing market is widely accepted as a great area for rental properties in 2021. From an economic perspective, Atlanta is producing countless new jobs, which feeds into its high population growth. Atlanta’s population growth is 122% faster than the national average, which makes it the 4th fastest-growing metropolitan area. During the coronavirus pandemic, Atlanta pushed through very well only losing a fraction of what other cities lost in economic growth and employment. All of these factors point toward a strong recovery when the pandemic ends and sustainable long-term economic growth.
Atlanta’s real estate market has been performing very well as well. With an average home price of approximately $350K and rent of $1,600, Atlanta’s rental sector seems profitable. For reference, a Georgia mortgage with a 20% down payment and a 3% mortgage rate over 30 years would net you a monthly mortgage payment of about $1,546 including property taxes and homeowners insurance. This yields an expected real estate capitalization rate (cap rate) of about 4.95%. Georgie’s all-around economic growth and rental income opportunity make it the best place for potential rental investments.
2. Albuquerque, New Mexico
At a close second, Albuquerque is another one of the best rental investment cities out there. As the driving economic force behind New Mexico’s growth, Albuquerque has several universities and technology-related institutions. Its strong job market and steady population growth make it similar to Atlanta in many ways. With the highest population in all of New Mexico, Albuquerque’s real estate and rental markets are poised to quickly grow once the coronavirus pandemic ends.
While not as explosive as Atlanta in terms of growth, Albuquerque’s real estate market is much more affordable with an average home price of approximately $250K. Unfortunately, the lower real estate cost means rent is lower as well at about $1,009, which is close to what you would expect to pay on a 30-year mortgage. This gives Albuquerque an expected cap rate of 3.74%. Fortunately, homeowners in Albuquerque benefit from other financial incentives. With one of the lowest property taxes in the country at 0.78% and the fourth-highest GDP growth rate in the country pre-pandemic, Albuquerque could quickly become that much more profitable soon.
3. Arlington, Texas
The Lone Star State, Texas, has been known for affordable housing and a healthy economy. With high population growth and new jobs emerging, anywhere in Texas would be a reasonable real estate decision. However, Arlington stands out even within Texas because of its high real estate potential. Employment in Arlington increased by 7.55% over the past year. Much of this growth can be attributed to the Dallas Cowboys (NFL) and Texas Rangers (MLB) stadiums. The Texas sports and entertainment industry is centered around Arlington.
The most impressive real estate measure from Arlington is its extremely high rental yield of 15.6%. This is one of the highest rental yields in the country and earns investors a steady stream of income. With an average home price of about $240K and rent of about $1,104, rental investors can expect to earn a 4.25% cap rate. While rent may not be quite enough to cover monthly mortgage payments, home prices in Arlington are expected to increase by 11% over the next year and 26% in the next 3 years. Arlington’s high growth potential and strong economy make it a worthwhile consideration for rental investors.
4. Boise, Idaho
According to Forbes, Boise is the 15th fastest growing city in the US at 1.7% per year, which is reflected in a similar job growth rate of 3.6% over the past year. Over the next 10 years, Boise’s job market is expected to grow by over 50%, which is over 16 percentage points higher than the national average. This is because tech companies have started moving toward Boise for its low costs and it is one of the leading contenders to be the next Silicon Valley. If you decide to invest in a property in Boise, a large part of your success will depend on the impending race to be the next technology hub of the country.
This economic growth has led to leading real estate growth as well. In 2020 alone, home values rose 18.2% and this is expected to continue throughout 2021. The median home price in Boise is about $400K, which is higher than the national average. With the median rent at $1,396, homeowners should expect to lose a couple of hundred dollars each month from mortgage payments. Boise’s average cap rate is a decent 3.37%, which may seem low compared to the other top cities, but with incoming economic growth, this number is expected to rise. Boise takes the last spot on this list because of its high growth potential, low unemployment, and prospering economy.
It’s Not Time to Decide Yet
The cities we’ve listed are the best given prevailing economic and real estate data. However, the best place for a rental investment depends on your preferences. There is no such thing as the absolute best city for rental properties or any real estate decision. Factors like taxes, residential bylaws, local businesses, and climate should all come into play when picking a place for your rental investment. In some ways, investing in real estate is gambling on the states themselves. For example, the race to become the next Silicon Valley is anyone’s game, but its result would change the real estate market. Our recommendation is a great place to start when looking to buy a rental property, but your search shouldn’t end there. Picking the best location is a decision that can only be made by you.
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