Owning traditional rentals is one of the best real estate investment strategies in 2021, and the proven way to succeed with this strategy is to invest in the best cities for buying rental property. While there are many different criteria which an investor can use to determine the top locations for long term rentals, strong rental demand from good tenants is definitely one of the key factors. That’s why in this article we are going to look at the rental property investing opportunities in the top 5 US cities for inbound migration right now. As people move to these cities, they are not likely to immediately buy a home, so they will be looking for rental properties. As a savvy investor, you should take advantage of the growing demand in these markets to grow your investment portfolio.
Benefits of Buying and Renting a House on a Long Term Basis
- Passive income source – After buying rental property and renting it out, you can make recurring income without putting in much effort. This real estate strategy can turn into a source of passive income if you hire a professional property manager.
- Tax benefits – The IRS allows landlords to deduct expenses associated with running a rental property business. These include maintenance costs, insurance, legal fees, property management fees, and depreciation.
- Hedge against inflation – Typically, the annual real estate appreciation rate exceeds the rate of inflation. This makes buying rental property the ideal hedge against inflation.
- Equity – As you pay off your mortgage, you increase the equity on your home. You can later leverage this equity to borrow a home equity loan for buying another rental property. In this way you can build an entire real estate investment portfolio in a few years.
Best Places to Invest in Real Estate to Rent Out in 2021
Which are the best places for buying rental property this year?
To find the best states to invest in real estate as well as the top cities, you should consider recent migration trends. New people coming to live in a location means an increased demand for traditional rental properties as they are most likely not going to buy a home right away. A rise in the rental demand will not only push occupancy rates up (and respectively vacancy rates down) but also put upward pressure on rental rates. From a real estate investor‘s point of view, this means that return on investment – whether you look at cap rate or cash on cash return – will also rise.
Since the onset of the Coronavirus pandemic, millions of Americans are migrating either to find a better home or to start a new job. According to a report by the NorthAmerican Moving Services, people are fleeing the Midwest and Northeast in favor of the warmer Southwest and Southeast.
Northeast states with the highest outbound migration include New York, Maryland, New Jersey, Michigan, and Pennsylvania. The report mentions harsh winters, job unavailability, and high cost of living as some of the reasons why people are leaving the northeast.
Meanwhile, states in the Midwest with high outbound migration include the Illinois, Minnesota, and Ohio housing market. Just like the Northeast, the Midwest is also known for its harsh winters and lack of jobs.
On the positive side, the states with the most inbound moves are Idaho, Arizona, Tennessee, South Carolina, North Carolina, Florida, Texas, and Colorado. So, if you’re looking for where to invest in real estate properties that will enjoy a high demand from tenants, look into the Arizona housing market, the Florida real estate market, the Texas housing market, and the Colorado real estate market. These states have traditionally been top locations for traditional rental properties, and this trend is only expected to grow in 2021.
At the city level, the migration report by the NorthAmerican Moving Services lists the following as the top destination cities for US migration in 2020:
- Denver, Colorado
- Houston, Texas
- Dallas, Texas
- Atlanta, Georgia
- Phoenix, Arizona
If you want to make a good return on investment from real estate investing, consider buying rental property in these locations. This article will explore why these are the best cities to invest in real estate in 2021.
Denver Housing Market
With its temperate climate and bustling economy, Denver continues to attract new residents every year. It is also a favorite destination for real estate investors buying rental property. 2020 was a historic year for the Denver real estate market. The city experienced months of low inventory, drastic price increases, and record-breaking sales. According to a recent report by the Denver Metro Association of Realtors (DMAR), 2020 ended with almost 63,000 homes sold, an increase of 7% from 2019. The median prices for condos and single family homes in Denver hit record-breaking highs of $334,752 and $510,000, respectively.
Here is the latest Denver housing data from Mashvisor:
- Median Property Price: $519,660
- Price per Square Foot: $350
- Price to Rent Ratio: 23
- Monthly Traditional Rental Income: $1,872
- Traditional Cash on Cash Return: 2.38%
Houston Housing Market
Houston, the largest city in Texas, is diverse and multicultural. Home to numerous Fortune 500 companies, it is a major hub for business. Due to its warm weather year-round and low cost of living, Houston continues to attract thousands of migrants every year.
According to the Houston Association of Realtors (HAR), the Houston real estate market has been on an upward trend in recent months. Here are some highlights from the month of March 2021:
- 9,347 single family home sales were sold, a 24.4% year-over-year increase
- 11,692 units were sold in total, a 31.5% year-over-year increase
- Days on market (DOM) for single family properties dropped from 65 to 45
- Condo/townhome sales went up by 45.2%
- Single family home price hit a record high of $370,847
Here is Mashvisor’s real estate data for long term rental properties for the month of May:
- Median Property Price: $427,998
- Price per Square Foot: $192
- Price to Rent Ratio: 19
- Monthly Traditional Rental Income: $1,849
- Traditional Cash on Cash Return: 2.58%
Dallas Housing Market
Redfin lists Dallas, Texas as one of the destinations that gained the highest number of residents in 2020. According to the report, Dallas had a net inflow of 75,000 new residents, which was only second to Phoenix. Around the Block explains that people are moving to Dallas due to the availability of jobs and the relatively low cost of living. In addition, Texas is one of the nine states in the US that doesn’t have any state income tax.
Buying rental property in the Dallas real estate market would therefore be a smart move for any investor. Here are some Mashvisor metrics to look at:
- Median Property Price: $493,041
- Price per Square Foot: $233
- Price to Rent Ratio: 22
- Monthly Traditional Rental Income: $1,910
- Traditional Cash on Cash Return: 1.90%
Atlanta Housing Market
People are increasingly moving to the Atlanta real estate market from expensive metros like Los Angeles, Washington D.C. and New York. Based on home searches on Redfin.com, Atlanta is one of the most popular destinations for people desiring to move into a different area. Redfin reports that the city received about 42,000 new residents in 2020.
So why is there an increase in the net inflow of people seeking to move to Atlanta? First, the area is attractive due to the low cost of living compared to other big cities. In addition, the city is home to large companies like Coca Cola, Home Depot, and Delta. This means a growing economy and high job growth. The mild weather and beautiful landscapes are other factors that contribute to the increasing migration to Atlanta.
For real estate investors, Atlanta is one of the best locations for buying rental property, both for traditional Atlanta rental properties and Airbnb Atlanta investments. According to a Redfin report in April 2021, home prices increased by 9.4% compared to the previous year. Days on market (DOM) dropped to 23 days, which is lower than 34 days last year. Finally, 1,761 homes were sold in April, an increase from 1,102 last year.
Here is data for traditional rental properties in Atlanta, Georgia provided by the Mashvisor investment property calculator:
- Median Property Price: $511,673
- Price per Square Foot: $290
- Price to Rent Ratio: 20
- Monthly Traditional Rental Income: $2,154
- Traditional Cash on Cash Return: 2.68%
Phoenix Housing Market
Due to its affordability, weather, and scenic landscape, Phoenix has always been a popular destination. In fact, Redfin reports that Phoenix received about 80,000 new residents in 2020, making it the top destination.
When it comes to buying rental property, Phoenix is one of the hottest markets. Driven by demographic pressures and low mortgage rates, the Phoenix real estate market continues recording the highest growth in rent and home values among the largest metros. According to a recent Zillow market report, home values have gone up by 2.1% in Phoenix, while annual rent has grown by 8.4%.
Thinking of buying rental property in Phoenix? The following real estate data provided by the Mashvisor real estate software shows you the current state of the Phoenix housing market.
- Median Property Price: $523,779
- Price per Square Foot: $268
- Price to Rent Ratio: 27
- Monthly Traditional Rental Income: $1,588
- Traditional Cash on Cash Return: 2.08%
To learn more about the best locations for buying an investment property to rent out traditional in 2021, watch our video below:
These are the 5 best US cities for buying rental property in 2021 if you want to follow the migration trends. While the expected strong rental demand is a good sign for high profitability, another way to push the rate of return on a rental property in these markets is to buy an affordable property. If you are looking for cheap houses for sale, the Mashvisor real estate investment tools can help you find the best traditional rental homes. On the Mashvisor Property Marketplace, you will find great deals for rental properties like foreclosures, bank owned homes, short sales, and auctioned homes. To conduct real estate market analysis on these properties, you can use the Mashvisor rental property calculator. Meanwhile, you can use the Mashvisor Property Finder to search for top-performing income properties among MLS listings.
Click here to sign up for a 7-day free trial of Mashvisor followed by a 15% discount for life.