Top 25 Cities to Buy Investment Properties in 2020

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Clever Real Estate

Updated 

May 7th, 2020

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See a comprehensive list of the best 25 cities for investing in real estate in 2020. Bonus content on the pros and cons of real estate investment and how to buy a new property.

Introduction

Starting out in the investment world can be intimidating. In this article, you will learn what an investment property is, how they can make you money, the pros and cons of real estate investment properties, and ultimately, a list of the 25 best cities in the US in 2020 for real estate investments.

What is an Investment Property?

There are two characteristics that define an investment property:

  1. You own the property to make money
  2. It is not your primary residence

If you are interested in purchasing an investment property, your primary goal is to make money off either income from the rental of the property or the eventual sale of that property. It is also important to note that an investment property is not your primary residence. Your primary residence is an investment in itself, but does not fall under the real estate umbrella of a traditional “investment property”.

An investment property can take a few forms:

  • Single-family home for rent
  • Apartments for rent
  • Office space for rent
  • Warehouse or storage space for rent
  • A vacation home that doubles as a rental or AirBnB

What to Look for In an Investment Property

When starting on your journey to purchasing an investment property, the first step is familiarizing yourself with the market. Identify which type of property would do well in your area. Are single-family homes popular, or is the market more primed for duplexes or apartments? Is the market in need of commercial real estate like office spaces or retail space? Identify the need in your area and where you can fill that need with an investment property. Also, look at trends for what is selling/renting and what is not to help inform your decision.

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Tools for Viewing Market Trends in Real Estate

There are a number of tools available online to help you understand the real estate market in your area. Here are some examples:

  1. Realty Trac
  2. Mike DelPrete’s Blog
  3. Redfin
  4. Zillow
  5. Realtor.com

Pros and Cons of Owning an Investment Property

Before you get started looking at properties to purchase, take a good look at the pros and cons of investment real estate, and see if they work for your position and temperament.

Pros:

  • Build Wealth
  • Generate Income
  • Equity Appreciation
  • Leverage when Buying Real Estate

Cons:

  • High Barrier to Entry
  • Uncertainty/Short Term Risk
  • Time Commitment

Investment properties have a huge long-term ROI potential, which can help you increase your portfolio of income properties in the future. However, investment properties have a high barrier to entry. Most sellers want 25% down, which his 5% higher than the normal for a traditional home buyer. Plus you will likely need to budget more for expenses each month to run or fix up a large building or complex, so you need to have a stable amount of cash liquidity. Income properties also present with the possibility of short-term risks. A tenant might leave abruptly or be unable to afford rent, you might not be able to find a new tenant, etc. These are short time risks to your expected cash flow that you will need to be aware of and prepared to deal with. Lastly, as an owner of a property, you will be a landlord, which is hard work and can be time consuming and expensive.

Take the good with the bad and like any decision, weigh your pros and cons to make an informed decision that feels right for you and your current situation.

Top 25 Cities to Invest in 2020

The data for the top 20 cities for investment properties was pulled from various resources, but a special call-out is due to TurboTenant’s Reports. The cities listed below show data on the median selling price of properties, the average rent per month, the percentage increase in home values over the past year, the population growth over the last year, the unemployment rate over the last year, and the average number of days on the market for that city.

These statistics and data combined make for the top 20 cities to invest in real estate. Take into consideration which cities have a median sales price that you can afford, combined with a rent that would make you sufficient income. The increase in home value is important because that indicates the health of the market and how likely you would be to turn a profit simply from selling the property in the future. Unemployment is worth considering so you know the general atmosphere of the city and how well their economy is doing at the moment. Lastly, the number of days on the market is noteworthy because you want to invest in cities where real estate is doing well and the demand is high. A lower number in this section indicated market health.

Cash Flow vs Appreciation Investments

Before we dig into the top 25, a quick note on cash flow investments vs appreciation investments. The list below consists of a combination of both types of investments. A cash flow investment is a property that will increase your income steadily over each month that you own the property. An appreciation investment is a property that will yield more value from the long-term ownership, and eventual sale, of that property than from monthly income. These two types of investments are not mutually exclusive.

The List of Top 25 Cities for Real Estate Investment in 2020

Here is a sneak peek of the top 10 cities. What do they have in common? They are all on the East half of the U.S. 

1. Tampa, FL

Median Sales Price: $225,250

Average Rent: $1,485

Increase in Home Values: 4.9%

Population Growth: 12.69%

Unemployment Rate: 3.4%

Number of Days on the Market: 27


2. Gulfport, MS

Median Sale Price: $179k

Average Rent: $995

Increase in Home Values: 10%

Population Growth: .5%

Unemployment Rate: 4.5%

Number of Days on the Rental Market: 16


3. Allentown, PA

Median Sale Price: $145k

Average Rent: $1063

Increase in Home Values: 19%

Population Growth: 1%

Unemployment Rate: 4.2%

Number of Days on the Market: 9


4. Hunstville, AL

Median Sales Price: $158,750

Average Rent: $1,075

Increase in Home Values: 10.4%

Population Growth: 10.35%

Unemployment Rate: 2.3%

Number of Days on the Market: 41 


5. Birmingham, AL

Median Sales Price: $116,000

Average Rent: $1,150

Increase in Home Value: 10.6%

Population Growth: 2.03%

Unemployment Rate: 2.5%

Number of Days on the Market: 48


6. Colombus, OH

Median Sales Price: $183,000

Average Rent: $1,310

Increase in Home Value: 7%

Population Growth: 10.49%

Unemployment Rate: 3.7%

Number of Days on the Market: 42


7. Detroit, MI

Median Sales Price: $207,000

Average Rent: $1,462

Increase in Home Value: 20%

Population Growth: 0.82%

Unemployment Rate: 3.8%

Number of Days on the Market: 48


8. Memphis, TN

Median Sale Price: $129k

Average Rent: $821

Increase in Home Values: 12.6%

Population Growth: 0.0%

Unemployment Rate: 7%

Number of Days on the Market: 16


9. Reading, PA

Median Sales Price: $140K

Average Rent: $957

Increase in Home Values: 11.1%

Population Growth: 0.4%

Unemployment Rate: 4.1%

Number of Days on the Market: 8


10. East Orange, NJ

Median Sale Price: $273k

Average Rent: $1,534

Increase in Home Values: 10%

Population Growth: 0%

Unemployment Rate: 6.7%

Number of Days on the Market: 15


11. Manchester, NH

Median Sale Price: $247k

Average Rent: $1,452

Increase in Home Values: 10.3%

Population Growth: 0.7%

Unemployment Rate: 2.8%

Number of Days on the Market: 15


12. Paterson, NJ

Median Sale Price: $268k

Average Rent: $1,614

Increase in Home Values: 11.9%

Population Growth: 0%

Unemployment Rate: 4.6%

Number of Days on the Market: 28


13. New Castle, DE

Median Sale Price: $188k

Average Rent: $1184

Increase in Home Values: 8%

Population Growth: 4%

Unemployment Rate: 3.3%

Number of Days on the Market: 1


14. Orlando, FL

Median Sales Price: $231,000

Average Rent: $1,486

Increase in Home Values: 6.38%

Population Growth: 2.73%

Unemployment Rate: 2.9%

Number of Days on the Market: 25


15. Grand Rapids, MI

Median Sale Price: $193k

Average Rent: $1129

Increase in Home Values: 7.5%

Population Growth: 1.8%

Unemployment Rate: 2.4%

Number of Days on the Market: 20


16. Buffalo, NY

Median Home Price: $160k

Average Rent: $1020

Increase in Home Values: 8.5%

Population Growth: 1%

Unemployment Rate: 6%

Number of Days on the Market: 12


17. Cincinnati, OH

Median Sale Price: $163k

Average Rent: $1048

Increase in Home Values: 3.1%

Population Growth: 1%

Unemployment Rate: 3.3%

Number of Days on the Market: 13


18. Akron, OH

Median Sale Price: $103k

Average Rent: $757

Increase in Home Values: 8.7%

Population Growth: 0%

Unemployment Rate: 7%

Number of Days on the Market: 12


19. Schenectady, NY

Median Sale Price: $160k

Average Rent: $1319

Increase in Home Values: 7.3%

Population Growth: 0%

Unemployment Rate: 6%

Number of Days on the Market: 12


20. Nashua, NH

Median Sale Price: $283k

Average Rent: $1,524

Increase in Home Values: 4.5%

Population Growth: 0.6%

Unemployment Rate: 4.2%

Number of Days on the Market: 8


21. Rochester, NY

Median Sale Price: $136k

Average Rent: $1126

Increase in Home Values: 5.6%

Population Growth: 1%

Unemployment Rate: 3.9%

Number of Days on the Market: 16


22. Columbia, SC

Median Sale Price: $165k

Average Rent: $899

Increase in Home Values: 5.6%

Population Growth: 0%

Unemployment Rate: 5%

Number of Days on the Market: 12


23. Indianapolis, IN

Median Sales Price: $164,400

Average Rent: $1,172

Increase in Home Value: 5.4%

Population Growth: 8.25%

Unemployment Rate: 3.1%

Number of Days on the Market: 20


24. Dallas, TX

Median Sales Price: $215,000

Average Rent: $1,624

Increase in Home Value: 2.3%

Population Growth: 17.33%

Unemployment Rate: 3.1%

Number of Days on the Market: 44


25. Independence, MO

Median Sale Price: $140k

Average Rent: $745

Increase in Home Values: 0.1%

Population Growth: 0%

Unemployment Rate: 4.2%

Number of Days on the Market: 16

Connect with a discount real estate agent near you.

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What to Look for in an Investment Property

When you start your search for an investment property, the first thing you need to do is set a budget. Decide how much you can afford to put down as a down payment (aim for 25%) and how much you can afford in monthly expenses. Budget for at least 6 months without income from the property so you have padding if anything were to go awry.

  1. A great location
  2. Potential for appreciation
  3. Only cosmetic updates needed
    1. Eg: no serious foundational, plumbing, or structural issues apparent
  4. What are the property taxes going to be
  5. The average rent for that area

Ben Mizes, who has worked in investment real estate for over 5 years, recommends looking for properties on the cusp, “Look for something in an area that sells for a great price, but has potential for appreciation.” Mizes also recommends searching for properties that are priced below market value or misprices properties, “if you find a property that is mispriced, it could be they are missing a bonus room that could be a bedroom or the rent was too low for the area. These are great opportunities for investment property owners.”

Property Taxes and Investment Properties

Whether you like it or not, taxes are going to be a big part of your expenses when you purchase an income property. Property taxes vary widely across states, so you want to be fully aware of the laws and regulations in your area. To find out the tax regulations for properties in your area, you need to consult with the municipality’s assessment office.

Don’t be completely scared away by high property taxes. Sometimes it means that the neighborhood is more attractive and can lead to long-term, stable tenants.

Property taxes are calculated based on the value of your property. Take a look at this article for a breakdown of the different tax rates by state. Here are a few examples:

Rank(1=Lowest Taxes)
StateEffective Real-Estate Tax RateAnnual Taxes on $205K Home*State Median Home ValueAnnual Taxes on Home Priced at State Median Value
1Hawaii0.27%$560$587,700$1,607
2Alabama0.42%$854$137,200$572
3Colorado0.53%$1,076$313,600$1,647
3Louisiana0.53%$1,091$157,800$840
5District of Columbia0.55%$1,122$568,400$3,113

*Table and information pulled from WalletHub

There’s also a great tool on Clever’s website that will help you calculate the property taxes for a property you own or are interested in purchasing. This can help you better understand what you will actually pay when you buy a new property in addition to the sale price.

How to Buy an Investment Property

The good news is that getting started is the hardest step. The information in this article should give you some stepping stones to buying that first (or second) property, but it can still be intimidating. Fortunately, we are going to give you a brief overview of what to expect when buying an investment property.

  1. The first step is to find a real estate broker to work with you. This is where Clever can help. Clever will match you with a top-rated real estate agent in your area that we have already negotiated a low rate with.
  • Between you and your realtor, you can drive around looking for sale signs or check online listings. When looking at properties online, make sure you pay attention to the location, the number of units (if applicable), the general condition of the property, and any amenities.
  1. Set a budget! Determine what you can afford upfront and what you can afford for monthly expenses.
  2. Once you find a property you like, do a CBA (Cost-Benefit Analysis)
  • Determine how much you will spend every month, including costs to purchase the property and get it up to your standards. Then determine the potential income from that property. Make sure you have the capital to get started and that the long-term investment is proportionate to the cost.
    1. Get an inspection of the property to determine the condition and what needs to be done before purchasing.
  1. Consider getting an appraisal done of the property to determine its current value.
  • This will help you feel confident about the offer you are making and give you a great idea of the property taxes to expect.
  1. Make an offer
  2. If you are financing the property, work with a mortgage officer to determine your loan details
  3. Arrange and sign the paperwork
  4. Close the sale

Conclusion

When deciding to start investing your money in real estate, it is important to understand the ins and outs of how real estate works from a few different perspectives. You need to understand how the buying and selling process works, including what you will be responsible for, what you will owe to an agent, etc. You need to understand how to market and promote your property to obtain tenants. You will need to understand tax laws so that you feel confident about the property taxes each year. You will also need to gather a team of experts to help you along the journey such as a general contractor, a real estate agent, a lawyer, a financial advisor, etc. Having a team that you trust and that does good work is a key to success in real estate.

Now that you know where to invest in 2020, you can work with Clever to find a top-rated real estate agent in that area to help you along the way. Paying just $3,000 or 1% won’t hurt either.

Connect with a discount real estate agent near you.

List with a local full-service agent for just $3,000 or 1%.

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