With the rise in home prices across the United States, rental property investments are looking more lucrative than ever. As would-be homebuyers find themselves priced out of the market, they turn to more affordable cities and renting options instead. Savvy investors can take advantage of this opportunity by purchasing properties in these secondary markets.
So, if you’re a savvy investor, how do you know which housing market is right for your next rental property investment?
Sure you should be looking at property values and rental rates, but just as important are long-term city metrics like population growth, employment growth, and average income.
Other factors driving growth include demographics, workforce productivity, living quality, and business costs.
In general, you want to look for fast-growing markets with affordable properties projected to increase in value. Of course, the specifics of this depend greatly on your personal investment goals – and finding these markets is easier said than done.
Thankfully, we’ve put in some of the leg work for you.
Where to Invest in Property This Year
In 2019, the best places to buy investment property are increasingly urban. Especially hot are the so-called 18-hour cities that have emerged as attractive investment alternatives to bigger markets like Los Angeles and New York.
Many of these blooming 18-hour cities are in the South, where retirees are settling down and millennials are studying and searching for jobs.
The following five cities are all prime candidates for real estate investors looking to cash in on these secondary housing markets. All are featured in 2019’s Emerging Trends in Real Estate, an annual review of the U.S. real estate market published jointly by PwC and the Urban Land Institute.
#5. Austin, Texas
- Median Property Price: $518,686
- Median Rental Income: $1,842
- Price-to-Rent Ratio: 23.46
- Metro Population: 950,715
- 7-Year Population Growth: 20.28%
Austin is a perfect example of an 18-hour city on the rise. Though it isn’t the largest housing market in the state, the city’s projected population growth rate for 2019 is over three times the national average.
This growth rate is supported by a swell of in-migration from more expensive cities and a diverse economy that includes a burgeoning tech startup scene.
The city’s potential can also be seen in its demographics. A significant portion of Austin’s population is in the 0-24 and 25-44 age cohorts.
This younger populace supports strong growth in a labor force that exceeds the national rate in both participation and production.
These demographics are as favourable to landlords as they are to city growth, as the renter pool stays consistently topped up with students and young professionals.
If you’re looking to double down on Texas properties, you don’t have to look far: San Antonio and Dallas/Fort Worth are also in the top 20 markets for 2019 and have similarly exceptional growth rates and demographics.
#4. Columbus, Ohio
- Median Property Price: $184,200
- Median Rental Income: $1,336
- Price-to-Rent Ratio: 15.86
- Metro Population: 2,000,000
- 7-Year Population Growth: 11.71%
Columbus is the capital and largest city in Ohio, and home to some of the biggest universities and research institutes in the United States. In 2019, it’s also one of the best places in the country to buy investment property.
The median price of a 3-bedroom home in Columbus is almost 20% lower than the national average, making this city one of the most affordable for homebuyers in the country. Columbus’s cost of living is also 10% less than the United States average.
In spite of this, the average rental price in Columbus is comparatively high, making this a prime location for investors.
The rental yield for Columbus properties is in fact the sixth-highest in the U.S., and a rental property bought in 2019 could be fully paid off by 2032, just over a decade later.
#3. Durham, North Carolina
- Median Property Price: $433,433
- Median Rental Income: $1,553
- Price-to-Rent Ratio: 25.00
- Metro Population: 267,743
- 7-Year Population Growth: 17.26%
For those looking to settle down, Durham’s shine comes from a strong economy, high quality of life, and proximity to colleges like Duke University.
For property investors, the city boasts a high average rent, yielding 5.6% and housing growth of 7.5% per year. If that’s not enough, home values in Durham have risen 11.7% year over year, with another 5.4% projected for 2019.
The wider Durham/Raleigh region has seen a tremendous influx of people under the age of 44, drawn by the area’s rapid expansion and job prospects.
Durham features an average commute time of eight minutes – a third of the national average – making it perfect for millennials seeking a better work-life balance.
The high concentration of young families, as well as Durham’s balanced housing market, makes it particularly profitable to invest in multi-family homes.
#2. Atlanta, Georgia
- Median Property Price: $165,000
- Median Rental Income: $1,299
- Price-to-Rent Ratio: 22.99
- Metro Population: 5,900,000
- 7-Year Population Growth: 10.95%
Like Austin, Atlanta is a southern city with huge growth potential.
The city’s population has been growing rapidly for decades, and its metro area is now the third-largest in the Southeast United States.
Its tech scene has been exploding, and Atlanta is in a good position to become a southern Silicon Valley.
Although Atlanta’s growth has slowed, it has by no means stopped. The city created 53,000 new jobs in the last year, and 2019 projections look likewise to be well above the average.
For real estate investors, Atlanta properties hit all the right notes compared to the national averages: median home prices 18% lower, median rents 10% higher, and median appreciation 60% faster over a 6-year period.
#1. Orlando, Florida
- Median Property Price: $201,000
- Median Rental Income: $1,398
- Price-to-Rent Ratio: 16.62
- Metro Population: 2,500,000
- 7-Year Population Growth: 17.00%
Orlando has consistently been one of the best markets for property investments over the last few years.
Despite favorable conditions for homebuyers – affordable prices, low property taxes, and a high quality of living – rental rates in Orlando have been rising by as much as 7% in a single year.
This growth is expected to hold steady through 2019 as retirees and young job seekers continue to migrate to the area.
At 3.2% per annum, Orlando’s projected job growth over the next 10 years is one of the highest in the United States.
This follows from a population growth more than twice the national average. In fact, Orlando is the 16th fastest growing metro area in the U.S.
Like Texas, Florida is a strong state all around for property investments. If Orlando’s not for you, check out Tampa/St. Petersburg, Miami, and Fort Lauderdale – all are also in the top 20 markets to watch.
Understanding Local Markets
Finding the right market to invest in is just the first step, especially if that market isn’t one you’re already familiar with.
New technologies and an increase in data are making the analysis of housing markets more robust and more complex than ever before.
Real estate agents are combining hundreds of data points – property elevation, local development plans, risk of climate damage, and on and on – to assess long-term property values with a high degree of precision.
With all this available information, it’s more important than ever to analyze a potential investment and understand what (or where) you’re getting into.
A good market is no guarantee of a good investment property and vice versa. It’s always a good idea to connect with local real estate agents who know their specific market inside and out.
The guidance and support of an expert can mean the difference between a money pit and a killer rental property that pays for itself in no time.