Welcome to 2019, the year the US rental market is exploding with more apartments available and more demand from those who simply can’t buy a home.
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.
And investors are curious about whether buying outside their area is wise. As it turns out, some cities have much more opportunities, commanding higher rents, lower prices, and better appreciation than other cities.
Short Windows of Opportunity
With prices plateauing or even dropping recently in California, Texas and Florida, and in the UK and Australia, 2019 might be the right year to find the best rental propertiesand buy them. 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 2019/2020 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.
Limited Availability Still Driving The Market in 2019
In 2019, US property prices are still too high for most buyers, particularly millennials, and housing availability is squeezed everywhere. Interest rates remain low and tax advantages are still positive. And that creates a need for rental property.
New Construction Apartment Condominiums are in demand
Which Housing Data Reveals the Best Cities?
There is no oracle regarding which rental properties are best. Property investment isn’t a race. Take your time to sift through and assess regional economic conditions, demographic trends, tax conditions, residential bylaws, unit types and sizes, employment rates and other important data to identify the best city for you.
There are city ratings related to lifestyle and livability that may weigh on your final decision. Don’t forget to bookmark this blog so we can update you on news for your target city.
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.
If you believe rental property investing is for you, then all you have to do is find the properties with the best ROI. Top returns are more likely in trending US cities where the economy, in-migration and technology are drawing investment dollars and creating fast rising employment or business opportunities.
Of course, you’ll discover some cities have net positive cash flow rising above 10%. And each has its own property price appreciation trends to consider. It’s not an easy choice for even the biggest property management companies, especially for a first time property investor. Take your time and have fun with your quest.
Rental Market Remains Solid for Investors
Although rental prices are flattening overall in the country, the lack of housing will ensure continuous upward price pressure till 2020. Rents have risen strongly up to an average of near $1500 per month, up 40% from 4 years ago. According to census.gov the apartment vacancy rate across the US is 6.9% yet in the west it’s 4.5%.
The number of renter households in the U.S. increased by 19.2% between 2005 and 2016, from under 37 million to nearly 45 million — excerpt from Multifamilyexecutive.com
Screen Capture courtesy of Statista
New Apartment Stock Arriving
The US needs millions of new apartments by 2030. And new construction won’t meet the demand, however investors will have more new construction rental opportunities to choose from in high employment regions.
Chart Courtesy of RealPage.com
Developers plan to deliver more than 100,000 new units per quarter nationwide from mid-2017 to mid-2018, up from 80,000 over the past year – from multifamilyexecutive.com yearly review
2018 Renter Statistics:
- 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 2019
Property investors are getting more technical in how they search for and buy rental properties. Big city markets rent to price ratios are out of whack and capital appreciation is negative. Now they’re looking into smaller secondary markets.
Secondary markets are heating up fast:
- their rate of population growth is twice as fast
- their job growth is more than double
- population is younger
- property has been appreciating much faster
- offer more affordable living
- southern US cities are where the growth is in 2018/2019
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and property investing is a more interesting way to grow your wealth!
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What Shifting Demographics and US Economics Mean for Investors
There is a big renter demographic shift going on in America. Texas, Washington, California, Florida are attracting new residents looking for jobs and career opportunities. Other states are losing residents. There are more jobs, better quality lifestyle, higher wages, and a thriving business sector in some of the cities you’ll see below which make them ideal for rental property investors.
However, you’ll see in the list below that other cities rate highly as well.
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!
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).
|Rental Unit Type||Average Rent||Change in Rent M-o-M||Change in Rent Y-o-Y|
Buy Low Rise or High Rise Structures?
Although most cities are seeing a race to the sky, stats show that low rise apartments, townouses and condos rose 3% to 6% over the last two years (2015 to 2017). High rise price growth during the same period has shrunk from 3% to 1%.
What About the Economic Forecast?
The US economy is expected to roll along well, or perhaps overheat due to new goverment infrastructure spending being funded by new government bonds being issued.
Although you might be focusing solely on Texas, Florida and California, you may want to look at formerly depressed states and cities. Michigan for instance has dirt cheap properties available, perhaps perfect for investors with limited budgets. As long as you’re using a good cloud based property management software, you can manage your apartments, condos, and houses from anywhere.
Rumors: If President Trump and the Republicans are serious about bringing the auto industry back to the US, as he’s stated publicly, Michigan is the place he mentioned would benefit. Grand Rapids for instance is number one in the nation for job growth and the auto sector may be the reason why.
Contrast Grand Rapid’s job growth at 4.4% to Oklahoma city’s 1% drop and you can see how important variations are. Other cities that shone last year: Orlando (4.2%). Nashville (4%), Charlotte (3.7%) and Salt Lake City (3.7%).
Job Growth Across the Major US Cities
[Source: U.S. Census Bureau]
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.
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.
|Rent to Price Ratio – Higher is Better|
|City||Rent to Price|
|Home Price||Average Rent Price|
|New York, New York||1.30%||$307,800||$4,079|
|Buffalo, New York||1.20%||$81,500||$1,016|
|Corpus Christi, Texas||0.80%||$121,848||$970|
|Kansas City, Missouri||0.70%||$127,400||$943|
|Fort Wayne, Indiana||0.70%||$103,300||$726|
|St. Paul, Minnesota||0.70%||$196,600||$1,355|
|St. Louis, Missouri||0.70%||$127,800||$879|
|st louis, missouri||0.70%||$127,800||$879|
|Jersey City, New Jersey||0.70%||$428,200||$2,822|
|El Paso, Texas||0.60%||$115,400||$747|
|Greensboro, North Carolina||0.60%||$132,100||$839|
|Fort Worth, Texas||0.60%||$166,192||$1,045|
|Fort Lauderdale, Fl||0.60%||$293,200||$1,832|
|New Orleans, Louisiana||0.60%||$174,600||$1,089|
|San Antonio, Texas||0.60%||$168,500||$977|
|Durham, North Carolina||0.50%||$196,000||$1,077|
|Oklahoma City, OK||0.50%||$132,500||$727|
|Raleigh, North Carolina||0.50%||$229,000||$1,119|
|Raleigh, North Carolina||0.50%||$229,000||$1,119|
|Newark, New Jersey||0.50%||$241,100||$1,153|
|Albuquerque, New Mexico||0.40%||$187,300||$841|
|Virginia Beach, Virginia||0.40%||$258,700||$1,152|
|Las Vegas, Nevada||0.40%||$239,500||$974|
|Colorado Springs, Colorado||0.40%||$263,700||$1,072|
|Las Vegas, Nevada||0.40%||$239,500||$964|
|Washington, District of Columbia||0.40%||$545,400||$2,085|
|Salt Lake City||0.38%||$295,200||$1,116|
|Santa Ana, California||0.30%||$526,500||$1,829|
|Los Angeles, California||0.30%||$658,500||$2,284|
|San Diego, California||0.30%||$601,200||$2,069|
|Chula Vista, California||0.30%||$509,300||$1,650|
|Long Beach, California||0.30%||$578,500||$1,860|
|San Francisco, California||0.30%||$1,293,600||$3,430|
|San Jose, California||0.30%||$1,007,400||$2,620|
|Santa Clara, California||0.20%||$1,288,500||$2,697|
|San Mateo, CA||0.20%||$1,484,250||$3,050|
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.