As a veteran investor, I get a lot of questions from newbies about how to make a steady income from flipping real estate. Many people want to be their own boss and ditch the 9-5 but fear losing the stability of a regular paycheck. The truth is, flipping houses rarely ever leads to that kind of steady income—the nature of the game is that you’ll make a lot of money some months and next to no money for many more months.
That doesn’t mean you have to be stuck in an awful job for the rest of your life, though. Another type of real estate investment that does generate a monthly cash flow is rental properties. Not all rental markets are the same, though. In some areas of the U.S., real estate markets are so highly priced that it can be almost impossible to break even on the investment, let alone turn a profit. On the other hand, some states currently have that magical balance of a low cost of living and high demand for rentals, creating the ideal environment for aspiring landlords. Let’s take a look at the top 6 best states to buy a rental property in 2022.
Top 6 Best States to Buy Rental Property in 2022
For the most part, it’s hard to define a real estate market on a state-wide basis, because prices and conditions can vary from city to city or even neighborhood to neighborhood. So, while I’m listing the best states to buy a rental property, I will focus on the specific cities and neighborhoods ideal for new investors.
Illinois – Chicago
Chicago is one of the biggest cities in the U.S. and thus has one of the most active rental markets. Chicago—and the vast suburbs expanding around it—is densely populated, has plenty of jobs, and still offers pockets of affordable housing. The city is a huge financial center with one of the largest business districts in the country, with more than 30 Fortune 500 companies and 390 major corporations headquartered in Chicago. Major colleges like Northwestern and the University of Chicago draw in vast numbers of students who need rentals, plus the thriving tourist industry (including a whopping five professional sports teams) ensures a steady income for vacation and Airbnb rentals.
If you know where to look for the best places to buy investment property in Chicago, you can find homes under $200k that are ideal for renting. For example, Rogers Park is full of older, pre-WWII homes and small apartment buildings in the $100k range, and it’s close to Loyola University and the lake, making it an excellent neighborhood for landlords. Rent prices within city limits start at around $1,500, and about 53% of households in the metro area are renters. All these factors combined are why Chicago is one of the only big cities in the U.S. where you can still find great rental investment opportunities.
Michigan – Detroit
I know Detroit doesn’t have the best reputation, but that’s part of the reason why you should consider investing in the Motor City. The city’s economy has been quietly evolving beyond its automotive roots to include industries like defense, aerospace, healthcare, IT, and logistics. Downtown Detroit is going through a huge metamorphosis as billions of dollars are invested in new real estate developments, and many of the vacant and dilapidated buildings are torn down. This influx of jobs, attractions, and real estate is attracting renters in droves. However, not many people know about these positive changes outside of Michigan, which means property prices are still a fraction of other major cities.
The Detroit real estate market shows median home prices in the metro area are around $188k, 26% lower than the national average. However, average rents are around $1,100, which is about the national average. You don’t need to be a mathematician to see how those numbers add to immense investment potential. For example, in Lafayette Park, you can pick up a single unit or townhome in the $200k range and then easily rent it out for $1,500 a month. Detroit has one of the best price-to-rent ratios in the country, which is why Michigan will be one of the best states to buy a rental property in 2022.
New York – Binghamton
Though NYC is a rough market for rental investors hoping to make a steady income, other, less-known areas in New York offer many opportunities. For instance, the Binghamton NY real estate market has been getting red hot lately. Located in south-central New York, this sleepy middle-class city features the state’s top-ranked public university, a historic zoo, and a brand new arts district. Job and population growth have been slow but steady, with major companies like FedEx and Amazon opening up local centers and more hospitality, healthcare, and education jobs moving in.
Binghamton is still coming out of a bit of a depression, which means there’s an ample supply of distressed homes and reasonably low living costs. The average home price in Binghamton is $101k, with up to 11% of homes priced below $56k. Rents are similarly cheap, ranging between $645 and $1,000 per month, but due to the meager cost of the houses, you still end up with a tremendous price-to-rent ratio. Plus, since the economy appears to be in an upswing post-pandemic, you may end up in a prime position to sell for an enormous profit in a few years.
Maryland – Baltimore
Maryland, in particular the Baltimore metropolitan area, is an exciting rental market because of the diverse job market, steady population growth, and relatively affordable housing. The thriving job market includes a massive federal government and military presence with the Federal Social Security Administration and the National Security Agency headquartered in the area. The Baltimore area also hosts several prestigious colleges, including Johns Hopkins University and the Maryland Institute College of Art (MICA). That means a constant influx of young adults moving to the region who need affordable rental housing. Plus, Baltimore is within commuting distance of several major cities with higher living costs, including Washington D.C., Philadelphia, and NYC, so the area has become a haven for workers who need more affordable housing.
The median home price in Baltimore is around $220k. However, property values can vary significantly on a neighborhood-by-neighborhood basis, so there’s still a large inventory of homes available in the $100k-$150k range. For example, in up-and-coming Charles Village, you can still snatch up rowhomes for around $135k. The average rent in Baltimore has been steadily increasing over the years, especially with the pandemic. Currently, the average one-bedroom rental is about $1,600 a month, higher than the national average of $1,100. The relatively low cost of homes compared to the higher than average monthly rent means you should have no problem generating a positive cash flow in the Baltimore rental market.
New Jersey – Bridgewater
I know New Jersey is a controversial choice for this list because most significant markets have an atrocious price-to-rent ratio that limits your investment potential. However, Bridgewater, NJ, is a hidden gem for landlords looking for a steady cash flow from their investments. It’s close enough to NYC for commuters looking for a quieter, more affordable place to live, so the population has been booming lately. Since many of those fleeing the city are young professionals, the demand for high-quality rentals is soaring.
The Bridgewater real estate market is a little pricier than others on the list, but the average rent prices more than make up for that. For example, in the southern area of Bridgewater Township, you can find properties in the $250k range, which can then be rented out for over $2,000 a month. Neighborhoods in Bridgewater can appeal to any potential renter, whether they want the amenities of the big city (the Green Knoll downtown district has a thriving restaurant and bar scene) or a quiet place to start a family (Bradley Gardens features peaceful parks and great schools). If you’re looking for rental investments in the NYC metro area, Bridgewater is one of New Jersey’s hidden gems for landlords.
Florida – Jacksonville
Florida is overall one of the best states to buy a rental property, with Orlando, Tampa, and Jacksonville topping many lists of the best rental markets in the country. For the sake of brevity, I’m going to focus on Jacksonville because out-of-state investors so often overlook it. Jacksonville is home to four Fortune 500 companies, 20 hospitals, and 13 Forbes Global 500 companies, so the job market has been exploding lately. Despite a great economy, excellent weather, and a business-friendly government, Jacksonville’s cost of living is lower than other similarly-sized cities. That means young professionals have been flocking to the area in droves, increasing the population by almost 16% in the last ten years, opening many opportunities for rental investments.
Outside of the touristy and high-end neighborhoods, you can easily find homes for sale in Jacksonville for under $200k, which is well below the national average. By comparison, rents are about the same as other mid-sized cities at an average of $1,100 per month. For example, the cozy and affordable Highlands neighborhood is particularly popular with renters and has a large inventory of homes in the $110k-$150k range. Any investor serious about making an income from rental properties should consider Florida, particularly Jacksonville.
Overall, the key is to research the individual cities, counties, and neighborhoods you’re interested in instead of assuming the entire state offers the same opportunities. For example, though Florida is one of the best states to buy a rental property, you should avoid certain areas like Miami and the Keys, where the market is generally too expensive to generate a good cash flow.
How To Find the Best Rental Property in 2022
Choosing a state to invest in rental property is only the first step—you still need to find leads on homes, market yourself to potential renters, and build out your rental portfolio. Plus, getting started in the industry can be challenging without training and mentorship from experts in your real estate market. That’s why I recommend joining HomeVestors®, a national network of independent real estate investing franchises.
As a new HomeVestors franchisee, you’ll get comprehensive training, one-on-one ongoing support and guidance from a real estate Development Agent, and access to some of the best marketing and lead generation tools in the business. With the help of the “We Buy Ugly Houses®” nationally-known marketing campaign, you’ll have no problem finding some of the best rental properties in 2022.
For more help finding the best states to buy rental property in 2022, contact HomeVestors today to learn about becoming a franchisee.
Each franchise office is independently owned and operated.