Over the past few years, real estate investing has become extremely competitive. The low-interest-rate environment coupled with the high demand has sent the housing market to new heights not seen since the subprime mortgage crisis. This trend is especially noticeable in large markets such as New York and Los Angeles. Needless to say, investing in these real estate markets can prove costly and risky for some. So what’s the alternative for investors who are looking for more affordable real estate markets? And what cities present the best opportunities for buying an investment property? This blog will give you a brief overview of the best small cities in America and explore the potential of investing in real estate in these small markets.
The Main Characteristics of the Best Small Cities in the US
Contrary to popular belief, you can easily generate a high return on investment in a small real estate market. In fact, there is a wide range of small cities that are currently undergoing major economic and demographic shifts. Zeroing in on such areas will enable you to ride the momentum of growth and profit from the bullish dynamics that dominate the city. Having said that, identifying a location that meets these criteria requires a firm understanding of what constitutes a good small market. Let’s check some of the main features that you should look for when searching for the best small cities to invest in real estate.
Related: 8 Characteristics of the Best Rental Markets
1- The level of development
Development is probably the most important factor that you should consider when you are looking for the best small cities. This term includes everything from basic infrastructure and amenities to commercial centers and hospitals. A location that lacks these essential features can be crossed off the list of the best places to invest in real estate. Moreover, you need to factor in future development plans in order to properly assess the upside potential of the housing market.
2- The strength of the economy
A key feature that the best small cities should have is a strong and diverse economy. The city should boast a multitude of employers that provide ample employment opportunities for the active population. This diversity of job options enables the local economy to remain stable even if a major employer leaves. Additionally, investing in cities with a booming tourism sector is highly advisable. Cities that receive a steady stream of visitors are ideal for short-term rental real estate investment strategies and are likely to generate positive cash flow for the investor within months.
3- Proximity to large metro areas
Even when you’re investing in small cities, you never want to get too far away from large cities. Regardless of the positive dynamics that might be present in a small town, the reality of the matter is that large markets will always be the main driving force of real estate. Investing in cities that are within a few minutes’ drive from a big city will allow real estate investors to profit from the influx of renters and property buyers who are constantly fleeing high rental rates and prices.
Where to Invest in Real Estate: 4 Great Small Cities
After going over the features of the best small cities, let’s discuss a few options that should be worth your consideration.
Note: We have listed Airbnb data below from Mashvisor’s investment property calculator to give real estate investors a full overview of each housing market. However, be sure to investigate whether or not it is legal to operate an Airbnb rental property (owner- or non-owner occupied) before making a final decision on where to invest in real estate.
1- Brentwood, Tennessee
Brentwood is one of the best places to buy rental property. The local real estate market is suited for both short-term and long-term strategies and finding positive cash flow income properties is relatively easy. Brentwood is home to 10 large employers that provide thousands of job opportunities. Furthermore, the past few years have seen the green-lighting of massive development plans that will equip the city with high-end hotels and new retail businesses.
Brentwood Real Estate Market Data
- Median Property Price: $783,162
- Price per Square Foot: $231
- Price-to-Rent Ratio: 28
- Traditional Rental Income: $2,310
- Traditional Cash on Cash Return: 1.7%
- Airbnb Rental Income: $2,259
- Airbnb Cash on Cash Return: 1.2%
- Airbnb Occupancy Rate: 50%
Related: Should I Invest in the Tennessee Real Estate Market 2019? Where?
2- Melrose, Massachusetts
A list of the best small cities in the US housing market would not be complete without mentioning Melrose. This Boston suburb has all the qualities of a small city while offering residents the perks of living in one of the country’s top metro areas. The city’s infrastructure is immaculate and the transportation system makes commuting to and from Boston a very smooth process. Real estate investors can expect a steady stream of rental income as more city residents are starting to look for affordable housing in the peripheries.
Melrose Real Estate Market Data
- Median Property Price: $724,143
- Price per Square Foot: $424
- Price-to-Rent Ratio: 22
- Traditional Rental Income: $2,746
- Traditional Cash on Cash Return: 2.3%
- Airbnb Rental Income: $3,326
- Airbnb Cash on Cash Return: 2.8%
- Airbnb Occupancy Rate: 61%
Related: New Massachusetts Airbnb Regulations Set to Take Effect in 2019
3- Carmel, Indiana
Carmel is another great city that is ideal for any type of real estate investment. Besides its proximity to Indianapolis, Carmel hosts various financial institutions that drive the job market in the area. Examples of this include insurance giant Geico and the CNO Financial Group. The city has also won a myriad of livability awards from major outlets such as CNN Money and Niche.
Carmel Real Estate Market Data
- Median Property Price: $434,067
- Price per Square Foot: $134
- Price-to-Rent Ratio: 19
- Traditional Rental Income: $1,955
- Traditional Cash on Cash Return: 2.3%
- Airbnb Rental Income: $2,225
- Airbnb Cash on Cash Return: 2.4%
- Airbnb Occupancy Rate: 46%
4- Brookfield, Wisconsin
When it comes to return on investment, this is easily one of the best small cities to invest in real estate. Brookfield’s economy is highly stable thanks in a huge part to two major companies that have headquarters there; Fiserv and Fedex’s SmartPost business unit. The tax revenue that these businesses generate for the city coupled with the high employment that they provide contributes tremendously to the local economy and the real estate market. Furthermore, Brookfield attracts a sizable number of tourists who flock to the area’s nature preserves.
Brookfield Real Estate Market Data
- Median Property Price: $337,742
- Price per Square Foot: $167
- Price-to-Rent Ratio: 12
- Traditional Rental Income: $2,416
- Traditional Cash on Cash Return: 3.8%
- Airbnb Rental Income: $2,981
- Airbnb Cash on Cash Return: 4.3%
- Airbnb Occupancy Rate: 67%
The Bottom Line
Finding the best small cities to invest in real estate should be easy if you stick to the criteria outlined in this article. In the meantime, start looking for properties in any of the small cities listed above right now by using our Property Finder tool!
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