There are many different ways to identify the best places to invest in real estate, and the best one is by looking at the cash on cash return by city. The CoC return is the most popular real estate metric for rate of return on rental properties as it is more comprehensive and accurate than the cap rate, ROI, or IRR. So, still not sure where to buy an investment property in 2020? Have a look at the cash on cash return you can expect in the top US housing markets for traditional rentals and Airbnb investment properties.
Cash by Cash Return by City: Traditional Rentals
First we’ll look at the CoC return which you can expect in 2020 for long term rental properties. The figures below have been computed by Mashvisor’s rental property investment calculator. This is one of the must-have real estate investment tools in 2020 which will eliminate the need to conduct real estate market analysis and perform investment property analysis manually. But we’ll talk about this in a bit.
Now, here are the 50 most profitable locations for traditional rental properties in 2020:
- Pittsburgh, PA: 3.4%
- Cathedral City, CA: 3.2%
- Detroit, MI: 2.9%
- Palm Springs, CA: 2.9%
- Baltimore, MD: 2.9%
- Philadelphia, PA: 2.6%
- Cincinnati, OH: 2.5%
- Honolulu, HI: 2.4%
- Lake Worth, FL: 2.2%
- For Wayne, IN: 2.2%
- Indianapolis, IN: 2.1%
- Saint Petersburg, FL: 2.1%
- Atlanta, GA: 2.0%
- Memphis, TN: 2.0%
- Gatlinburg, TN: 2.0%
- Bradenton, FL: 2.0%
- Clearwater, FL: 2.0%
- Nashville, TN: 1.9%
- Denver, CO: 1.9%
- Chandler, AZ: 1.9%
- Washington, DC: 1.8%
- Jacksonville, FL: 1.8%
- Orlando, FL: 1.8%
- Tampa, FL: 1.8%
- New Orleans, LA: 1.8%
- Arlington, VA: 1.8%
- Colorado Springs, CO: 1.8%
- Davenport, FL: 1.8%
- Fayetteville, NC: 1.8%
- Scottsdale, AZ: 1.8%
- Louisville, KY: 1.7%
- Cleveland, OH: 1.7%
- Columbus, OH: 1.7%
- Oklahoma City, OK: 1.7%
- Lexington, KY: 1.6%
- Las Vegas, NV: 1.6%
- Richmond, VA: 1.6%
- Alexandria, VA: 1.6%
- Charleston, SC: 1.6%
- Tempe, AZ: 1.6%
- Columbia, SC: 1.5%
- Virginia Beach, VA: 1.5%
- Sarasota, FL: 1.5%
- Kissimmee, FL: 1.5%
- Louis, MO: 1.5%
- Durham, NC: 1.4%
- Auburn, AL: 1.4%
- Gilbert, AZ: 1.4%
- Aurora, IL: 1.4%
- Houston, TX: 1.4%
Cash on Cash Return by City: Airbnb Rentals
Maybe you want to become one of the millions of successful real estate investors who have been making money in real estate with short term rental properties. After the establishment of Airbnb.com in 2008 and other similar home-sharing platforms afterwards (HomeAway, Vrbo, etc.), buying a vacation home has emerged as the more profitable rental strategy in the majority of US real estate markets as well as globally.
So, now’s time to find the 50 best performing cash on cash return by city markets in the US in 2020. The estimates, once again, are provided by Mashvisor’s cash on cash return calculator:
- Fort Wayne, IN: 10.4%
- Savannah, GA: 9.2%
- Cincinnati, OH: 8.9%
- Auburn, AL: 8.5%
- Columbia, SC: 8.3%
- Memphis, TN: 8.1%
- Charleston, SC: 7.9%
- Pittsburgh, PA: 7.4%
- Gatlinburg, TN: 7.2%
- Myrtle Beach, SC: 6.8%
- Virginia Beach, VA: 6.7%
- Joshua Tree, CA: 6.7%
- Oklahoma City, OK: 6.5%
- Las Vegas, NV: 6.5%
- Fayetteville, NC: 6.4%
- Louisville, KY: 6.3%
- Indianapolis, IN: 5.9%
- Richmond, VA: 5.7%
- Madison, WI: 5.5%
- Nashville, TN: 5.4%
- Lexington, KY: 5.3%
- Columbus, OH: 5.3%
- Detroit, MI: 5.2%
- New Orleans, LA: 5.2%
- Fresno, CA: 5.2%
- Kansas City, MO: 5.1%
- Fort Worth, TX: 5.0%
- Cathedral City, CA: 5.0%
- Saint Petersburg, FL: 4.9%
- Tucson, AZ: 4.9%
- Reno, NV: 4.8%
- Honolulu, HI: 4.8%
- Destin, FL: 4.6%
- Cleveland, OH: 4.5%
- El Paso, TX: 4.5%
- Colorado Springs, CO: 4.4%
- South Lake Tahoe, CA: 4.3%
- Clearwater, FL: 4.3%
- Jacksonville, FL: 4.1%
- Gilbert, AZ: 4.1%
- Baltimore, MD: 4.0%
- Orlando, FL: 3.9%
- Palm Springs, CA: 3.9%
- Redding, CA: 3.9%
- Kissimmee, FL: 3.8%
- Panama City Beach, FL: 3.8%
- Bradenton, FL: 3.7%
- Louis, MO: 3.7%
- Tempe, AZ: 3.7%
- Greenville, SC: 3.6%
Related: How to Find the Best Airbnb Properties for Sale
Note: When you are choosing the most profitable location for buying an Airbnb investment property based on cash on cash return by city, keep in mind that some of these markets face certain short term rental regulations which can be more or less restrictive. For example, vacation rentals for under 30 days are not allowed in the Las Vegas real estate market, but investing in Airbnb long term rentals is still a viable real estate investment strategy. Another example is the Los Angeles real estate market (which is not found in the list above), where short term rentals are permitted only in primary residences. There you can go for house hacking by buying a duplex, triplex, or another small multi family home to live in one housing unit and rent out the rest on Airbnb, HomeAway, or Vrbo.
Related: Airbnb Law Vegas Regulations 2018: What Investors Need to Know and Airbnb Los Angeles Laws: What Investors Should Know
What Is Cash on Cash Return in Real Estate Investing?
If you are a beginner real estate investor, you might still not be fully aware of the CoC return concept. No worries, here’s how to calculate cash on cash return for residential real estate rental properties:
Cash on Cash Return Formula
Cash on Cash Return = Annual Before-Tax Cash Flow/Total Cash Investment x 100%
The CoC return measure is somewhat similar to the capitalization rate but has one important advantage: It takes into consideration the method of rental property financing. That’s why it is a more accurate and more realistic metric of real estate return on investment.
The Best Cash on Cash Return Calculator in 2020
Now that you know how to define cash on cash return, you can imagine how much time and effort it will take to get all the necessary real estate data and estimates to calculate the return on investment on a few homes for sale which you are interested in. Here’s a quick summary of the numbers you’ll need:
- Property price
- Down payment (in cash)
- Closing fees
- Real estate appraisal
- Home inspection
- Initial repairs
- Monthly mortgage payments
- Property tax
- Property insurance
- Property management
- HOA dues (if investing in a condo)
- Cleaning fees (if investing in an Airbnb property)
- Utilities
That’s a lot of data to gather even for an experienced real estate investor, not to mention for a newcomer. You should not worry though. Real estate investing 2020 is all about working smart, not working hard. Recently AI has started taking over the real estate industry, and 2020 will have many software tools to offer to resourceful property investors to make their investment decisions both faster and more profitable.
Related: 5 Best Real Estate Investment Tools for 2020
One of these real estate investing tools is the cash on cash return calculator. This is a variety of the rental property calculator which facilitates the estimating of CoC return on rental properties.
Where can you find the best cash on cash return calculator for 2020? Right here, at Mashvisor. Our investment property calculator provides:
- Property price
- One-time startups costs
- Recurring monthly expenses
- Rental income
- Occupancy rate
- Cash flow
- Cash on cash return
- Cap rate
Analysis of the 2020 Cash on Cash Return by City
Even if you already have some experience in investing in real estate, absorbing and understanding all the above-presented data on CoC return by city for the top locations for rental properties in the US in 2020 might be overwhelming. That’s why we’ve summarized the most significant takeaways for you:
- Traditional cash on cash return by city will range between 1.4% (in the Houston real estate market) and 3.4% (in the Pittsburgh real estate market). The median value is 2.0% in the Atlanta real estate market.
- The best location for buying a long term rental property will be the Pittsburgh housing market with a cash on cash return of 3.4%.
- Airbnb cash on cash return by city will be between 3.6% in the Greenville real estate market and 10.4% in the Fort Wayne real estate market, with a median value of 6.4% in the Oklahoma City real estate market.
- The most profitable place for investing in an Airbnb rental property is the Fort Wayne housing market with a city average CoC return of 10.4%.
- Short term rentals yield significantly higher return on investment than long term ones. This is due to high Airbnb occupancy rate and higher nightly rates.
- The states with the largest number of top US housing markets for investing in rental properties in 2020 include Florida, California, Texas, Ohio, and Arizona.
- The 2020 cash on cash return by city in the vast majority of these best places is below the recommended good cash on cash return of above 8%. This should not sound discouraging. These are just city-level averages, while the best neighborhoods for real estate investing in each of these locations offer significantly higher rates of return. With Mashvisor’s heatmap analysis tool you can quickly identify the neighborhoods with the highest traditional and Airbnb cash on cash return in any US city or town. Moreover, Mashvisor’s investment property calculator will give you further information about each neighborhood including median property price, average CoC return, average Airbnb occupancy rate, and optimal rental strategy (whether traditional or Airbnb). Once you’ve selected a neighborhood with a high cash on cash return, you can filter homes for sale with above average return on investment within your budget and other expectations and then conduct detailed investment property analysis on each one of them with Mashvisor’s cash on cash return calculator.
Related: Neighborhood Analysis in Real Estate Investing
Are you ready to gain financial independence from your 9-to-5 job in 2020? If so, sign up for Mashvisor today to find a top-performing rental property in one of these locations with the highest cash on cash return by city or any other US real estate market.
