The Best Places to Buy Rental Property (And One to be Cautious of) for 2018
As the nation’s leading homebuyer, HomeVestors of America® is uniquely positioned to provide expertise about, and insight into, the real estate market for investors nationwide. Together, local franchisees in 46 states have bought over 95,000 houses since 1996. This cumulative on-the-ground experience is what drives an unparalleled perspective of rental markets across the country.
Yes, it can help to read quarterly research and data from other sources about how many foreclosures are available or how many houses have sold and at what price. But, keep in mind that you’re getting a story about what happened already. As a successful real estate investor, you need to be more forward-thinking than that.
When deciding whether to buy investment property or not, you also need to be ahead of the competition. To help you out, we’ve queried HomeVestors® franchisees across the nation to understand where the best places to buy rental property will be in 2018. The winners, listed here, were selected based on the local and state rental market dynamics, demographics and liveability, as well as the overall economic outlook for that area.
The Top 5 Best Places to Buy Rental Property in 2018
While you can find good investment opportunities in virtually any market with the right real estate investor lead generation system, we found that the following five states are among the best for buy-and-hold investors in 2018. You’ll find an overview of what makes each of these five states attractive to residents and why you should pay attention too. It’s our hope that, as you weigh the risks of residential property investment, you’ll be able to cross where to invest off your list. Here are our top picks:
Florida offers a sunny climate, access to a string of beautiful beaches, and multiple opportunities to be entertained—indoors and out. Even better, property taxes are low—lower even than the national average—and so is the price of insurance. Also, there is no state income tax. Add to these benefits the relative low cost of owning a home and an unemployment rate of only 3.9%, according to the Bureau of Labor Statistics (BLS), and you’ve got a population that’s potentially less financially distressed than the rest of the nation. Considering that Florida was one of hardest hit by the housing crisis, that’s saying a lot. Of course, it helps that nearly one hundred million tourists—a long-time staple of Florida’s economy—are drawn to the Sunshine State every year and that job growth across the sands is on the rise.
But, even in the face of Florida’s economic rebound, not everyone can afford to buy a home—nor do they care to. This has placed a high demand on rentals that the supply doesn’t seem to be meeting. As a result, rents have increased in many areas. Below are two Florida cities where we see the opportunity to support, and benefit from, the growing demand for rental housing.
Jacksonville is not only one of the fastest growing cities in Florida, it frequently ranks in national news as one of the fastest growing cities in the nation. With year-over-year increases in job and wage growth, and an unemployment rate that is below the national average, Jacksonville’s economy is booming and, not far behind it, the population. It’s home to several of America’s fastest growing companies, a thriving art and music scene, and a high standard of living at a relatively low cost of living—factors which appeal across generations. It helps that the city boasts a diverse group of employment sectors too, including manufacturing, aviation, finance, and information technology, which attracts an equally diverse workforce. But, it’s Millennials especially, who appear to be flocking to the area in the hopes of taking advantage of the increased job opportunities and more reasonable real estate pricing. In fact, their numbers are starting to equal that of the Gen Xers and the Baby Boomers.
“There are a lot of cities in Florida where demand results from landscape and location,” says one of our local franchisees, “but, Jacksonville is different in that you see people moving here for jobs. Millennials, in particular, are able to afford more square-footage for their money and they’re finding great job opportunities to go with it. This generation is definitely driving the population increase.”
While the median home sales price is below other major metropolitan areas, so is the rent. For incoming residents who aren’t ready to buy, and for retiring Baby Boomers who no longer want to own, this is good news. And, it’s great news for investors wanting their share of a promising rental property market. Even with home prices more affordable than other areas, the value of Jacksonville real estate is on the rise. So, assuming you know how to market to distressed homeowners of undervalued properties, buying and holding while the housing market continues to appreciate is a good way to leverage a strong demand for rentals now and realize potentially great sale returns later.
|Market Climate||Moving fast|
|Demographics||Cross-generational, with Millennials on the rise|
|Liveability||Thriving cultural scene, affordable amenities|
Orlando seems to be on everyone’s place-to-invest list—and with good reason. Orlando exhibits an affordable price-to-rent ratio for the middle-income housing market that, like Jacksonville, appears to be driven by strong economic factors. Unemployment is at 3.4% and wages are up between six and nine percent in some industries, like construction and manufacturing, according to the BLS. Other industries, like technology, are also booming. Three tech companies—Arrow Sky Media, CompuTech City, and Finexio—relocated to Orlando last year, on the heels of ADP’s decision to do the same, creating thousands of jobs. Corporate giant, Amazon, also added a fulfillment center to the area. Simply put, companies are flocking here because of Orlando’s ability to attract new talent.
Of course, it works the other way around too: the addition of new industries and the expansion of others create more, and better-paying, jobs that draw skilled workers into a city—especially if other benefits, like no state income tax, come with the deal. And, with the rapid increase in population that results come a higher demand for housing. Because the entry point for real estate investors who want to buy and hold property is easily attainable in Orlando—the median home sales price after a rehab is still below many metro U.S. markets—the prospect of appealing to would-be renters willing to pay market rates is achievable.
|Market Climate||Going through the roof|
|Liveability||Fun for the whole family|
Texas—currently home to almost 28 million people—also holds the nation’s record for the largest annual growth in population since 2010, according to the U.S. Census Bureau. And, several news outlets, like U.S. News & World Report, regularly rank the Lone Star State among the top 10 fastest growing states across the board, according to migration numbers, job growth, and the cost of housing. That’s because Texas isn’t just about oil and gas anymore. Tech companies and manufacturing facilities, for example, are moving in and paying well. In fact, the BLS reports that mean wages are up in almost all sectors. And, immigrants from Latin America and Asia—two of the fastest growing segments of homebuyers in the nation—have noticed. For real estates investors, this points to an opportunity to meet the growing demand for affordable housing that several cities, like Dallas-Fort Worth and Austin, are experiencing. So, let’s take a look at those two markets and why buying rental property there could be your next move.
There are more reasons to buy rental property in the Dallas-Fort Worth area than you can shake a stick at. First, the area also accounts for a disproportionately large percentage of financial sector jobs in the region and is home to several thousand company headquarters, of which many are Fortune 500 companies. With such a large concentration of employment opportunities, Dallas-Fort Worth has seen a surge in population growth like no other metro area in the U.S and will continue to grow.
Median home sales prices are also up, thanks in large part to the growing demand for housing, but still remain below pre-crash numbers. Of course, that’s expected to change quickly as more companies, like Toyota, move to the area and bring thousands of their employees with them. Local franchisees are already seeing a tightening on available housing, which will only drive home prices further north. The influx of new residents, the projected rise in the cost of buying a home, and the forthcoming inventory squeeze will necessarily push people into rentals. So, if you’re interested in making passive income from real estate investing, Dallas-Fort Worth looks like a hot place to do it.
|Market Climate||Keeps getting better|
|Demographics||Melting pot potential|
|Liveability||Bustling downtown, exciting nightlife, friendly neighborhoods|
|Economic Outlook||Busting at the seams|
From North Carolina, you have access to the Great Smoky Mountains, the Blue Ridge Parkway, the Outer Banks, and Emerald Isle. But, the lush, green hills and sandy, white beaches aren’t the only things of beauty that characterize North Carolina. The cost of living is below the national average and so are employers’ tax burdens. The state’s population was already growing faster than the national growth rate, thanks to its relative affordability, and crossed the 10 million mark in 2015, per the U.S. Census Bureau. With both national and international corporations moving in due to the low cost to set up shop, it’s reasonable to expect the number of new residents to rise even more. And, the decision of existing companies like LabCorp and The Clearing House to expand their operations and workforce will only further the appeal of North Carolina as a hub of economic growth and opportunity. In fact, the only issue the state may be facing is whether or not there is enough housing to support the rush of incoming residents looking for jobs. Of course, with the demand for housing likely to increase, so will the chance for investors to realize a good cap rate on rentals. And, though Raleigh tends to get a lot of attention in North Carolina, it’s in Charlotte where we see the greatest potential.
The Queen City of North Carolina has traditionally been best known for banks. Though only three financial institutions are now headquartered there—Bank of America, NewDominion Bank, and Carolina Premier Bank—it remains one of the largest financial centers in the U.S.. But, it’s also now home to a growing tech industry and an increasing number of science, engineering, and mathematics occupations. Tech-related jobs alone have increased faster than any other region in the country in the past year or two. And, unemployment overall is down while wages are up between one and five percent since last year, according to the Bureau of Labor Statistics.
Of course, Charlotte also offers mild weather year round, easy access to the mountains or the beach, and a number of breweries, museums, and sporting venues. For a smaller city with a population of under one million, there’s enough to keep even the biggest city folks entertained. So much so, in fact, that they’re moving in to find out.
By mid-2017, Charlotte had welcomed more newcomers than all but 10 other cities in the U.S., according to census data analyzed by the Business Journal. With a higher standard of living for a lower relative cost, plus the opportunity to find good paying jobs, it’s no wonder.
One local franchisee said, “Charlotte is going through a major growth spurt. With all of the new startups popping up and national organizations setting up satellite offices, there’s just no lack of opportunity to find work.” She notes that Charlotte is also witnessing an influx of younger people moving into the area and that “nearly all of them are looking for places to rent.” This is likely due to a shortage of housing inventory and rising median home sales prices. And, because the cost of buying a home keeps rising, our analysis concludes that it’s not a bad time to buy-and-hold now, then sell your investment property later when you can see even greater returns.
|Demographics||Young and young-at-heart|
|Liveability||Expanding transportation system, craft beer scene, and mom-and-pop shops|
|Economic Outlook||Ready for takeoff|
As one of the original thirteen colonies, Maryland has seen it all and seems to have it all as well. Residents can visit the National Aquarium in Baltimore, spend time on the beach at the Chesapeake Bay, walk the trails around the Blue Ridge Mountains, or tour Fort McHenry—the birthplace of the U.S. national anthem and a significant point of pride for the Old Line State. The state’s economy is strong as well, and not just because it attracts millions of tourists every year who also want to take in the sights, the food, and the history. Maryland is home to some of the highest income earners in the country with a median household income of $60,000 or more, according to the U.S. Census Bureau, making it one of the wealthiest states in the union.
It’s this potential to earn more at work in an area with a decent cost of living that’s inspiring people to move to Maryland—though at a slower pace than other we’re seeing in other states. The slow crawl of new residents is probably due to the repeated tax increases that have plagued the state in recent years. High property taxes, in particular, can stagnate home buying interest and even force current homeowners out of their properties, especially in the bigger cities. The upside, of course, is that this creates an opportunity to find motivated sellers of undervalued homes that can be turned into income-producing rental properties. And, until recent enactments by the state legislature to help reduce Maryland’s overall tax burdens are felt by its residents, we can expect more people to be pushed into rentals by choice or necessity. With an already strong rental market due to term limits on most government and military jobs that make homeownership impractical, buying property to hold makes good financial sense in Maryland. So, where should you buy? In Baltimore, of course.
Baltimore is one of the largest independent cities in the U.S., but, not having to answer to a county government isn’t all that this “city of neighborhoods” has to brag about. It’s less than an hour from the nation’s capital. So, those who work in and around D.C. but might be priced out of living there, have an affordable alternative with a reasonable commute. Of course, there are other reasons people choose to take up residence in Baltimore. Originally built as a shipping port, the city evolved to embrace a number of industries, like education and healthcare. As a result, unemployment is relatively low. But, more impressively, average weekly wages are high—higher than the national average, according to the Bureau of Labor Statistics. Cities with good-paying jobs that offer a decent standard of living, like Baltimore, are like honey to bees.
“The abundance of government-related jobs here and in the D.C. area certainly contributes to our higher-than-average wages,” says one of our Baltimore-based franchisees. “But, other fields, like bioscience, manufacturing, and cybersecurity and defense add to the pool of high earners and attract others who want the chance of making more too.”
But, with homeownership having lost some of its appeal in these post-recession years, especially in areas burdened with high taxes and occupied by transient or temporary labor, renting is on the rise. In fact, Baltimore now has a higher population of renters than of homeowners, and that trend is expected to continue into the foreseeable future. So, if you have a way to find fixer-upper homes for sale to rehab inexpensively and then rent out at market rates, it’s reasonable to expect that you’ll find Baltimore a great place to buy rental property in 2018.
|Market Climate||Holding steady, but looking up|
|Demographics||Diverse and financially healthy|
|Liveability||Good food, the great outdoors, and a hospital that can’t be beat|
|Economic Outlook||Strained by high taxes, but positive change is on the horizon|
Buying Rental Property in California: Be Cautious
It’s important to understand that real estate market growth does not always equal shrewd investment opportunity. You should always consider the impact of other factors, like whether or not prices are outpacing affordability, before putting any money on the line. Yes, real estate in the Golden State is always in demand. But, along with the rest of the nation, it also suffered during the last housing bubble. And, home prices are once again reaching pre-housing crash highs. The difference may be a flourishing economy rather than speculative lending, which is why we’ve decided to list it here. But, as a word of caution, tread carefully in California, lest you get carried off with the tide.
California is the most populated state in the U.S. and home to 28 national parks, Disneyland, Alcatraz, and the Entertainment Capital of the World. And, with low unemployment, solid job growth, and access to surfing, hiking, movie studios, and tech conglomerates—just to name a few more attractions—the people keep coming. The steady increase of transplants, including a growing population of immigrants, has been a boon to the economy. But, it’s also created a shortage of housing.
Since median home sale prices have skyrocketed, thanks to the rise in demand, many new residents have been pushed to rentals. While this creates opportunity for owning rental properties, you just can’t sidestep the fact that it is expensive to enter this market as a landlord. If you are financing the purchase of rental properties in California, because of the price to buy, you will probably find that rents will not cover the mortgage payments. This makes the stakes high. Many investors are counting on appreciation to make the investment worthwhile, but it’s important to keep in mind that because California real estate prices are skyrocketing, the housing market could take a serious dip in the near future. To avoid going bust with the potential bubble, it’s probably safer to look for multi-family units in areas just off the beaten path, like Inglewood.
This relatively small city located in the South Bay region of Los Angeles County was on very few investors’ radars just a couple of years ago. In fact, historically, it’s an economically-depressed area with high crime and dilapidated housing. But, there are dramatic changes underway that could shift the landscape of this southwestern town into one worth investing in.
Most notably, Inglewood will play host to not just one, but two NFL teams. The Rams and the Chargers will soon call the Los Angeles Stadium at Hollywood Park in Inglewood home. The $4.9 billion entertainment complex is slated to include a performing arts venue, several hundred hotel rooms, office and retail space, public parks, and 2,500 modern residences. Already under construction, this mixed-use facility has created thousands of jobs giving the local economy a much-needed boost.
As the project progresses and other businesses move in, Inglewood is likely to attract more SoCal residents looking for good-paying jobs. And, they’ll need housing. Since the complex itself will target high-end renters, the demand for moderately-priced units will only increase. This provides an opportunity for investors to fill that gap by buying and renovating property that can be rented at an affordable cost to tenants and still produce a decent return.
“We don’t often buy a houses in the Los Angeles area because there’s just not a lot of
juice in those deals,” explained a local franchisee. “But, sometimes a special circumstance arises that makes you look at things differently. The developments in Inglewood might be one of them—if you have a lot of capital to put into it and a stomach for risk.”
|Market Climate||Growing exponentially|
|Demographics||Diverse with influx of skilled workers|
|Liveability||Dramatically increasing shopping and amenities|
|Economic Outlook||Changing for the better—fast!|
The Single Best Place for Finding Deals on Rental Property
Whether you’re already investing in one of these areas or deliberating a move into a new region, our hope is that this real estate market overview will give you some idea of the direction you may want to head. Of course, there is never a guarantee of future investment performance wherever you buy rental property, and our analysis—or anyone else’s, for that matter—shouldn’t be viewed as such. We hope you’ve found this helpful solely as a tool and possible resource for helping you make a more informed decision about where to buy in 2018.
And, if you’d like to increase your odds of buying local rental property and building your real estate portfolio, contact us about becoming an independently owned and operated HomeVestors® franchisee anytime. Whether you invest in one of the five states above, or in any of the 46 states where we have a presence, we’ve got the nationally-known and trusted “We Buy Ugly Houses®” marketing campaign that has been one of the most effective ways to generate quality investment leads if you’ve got the drive. Go online anytime to request more information or simply give us a call.
Each franchise office is independently owned and operated.