2020 is approaching quickly, making real estate investors think about the best rental strategy for next year. While Airbnb investment properties offer higher return on investment in many US housing markets, traditional rentals remain a top real estate investing strategy, especially for beginners. They provide more security, less legal issues, and easier property management. But what are the most profitable locations for traditional investment investments? Here you’ll find a list of the top 20 traditional cash on cash return locations in the US in 2020.
What Makes for the Most Profitable Locations for Real Estate Investing?
The top locations for real estate investments share a few common characteristics:
1. High Population Growth
When thinking where to invest in real estate, you should go for places with positive population in-migration. This means that you will benefit from strong demand for long term rental properties as more and more people need a place to live without necessarily buying a home. Having a high occupancy rate is a prerequisite for a profitable real estate investment. After all, vacancies are a cost when calculating return on investment.
2. Strong Growing Economy
New real estate investors should look for cities with a diverse economy growing at an above-average rate. This is a prerequisite for traditional rental demand and for tenants who are able to afford paying rent on time every single month. Moreover, even if one economic sector goes down, your renters will be able to find employment in a different one in a diverse economy and not default on their rent payments.
3. High Proportion of Renters
Another indicator for strong rental demand is what percent of the population rents rather than owns a home. The most profitable locations for traditional rentals have a renter’s share of the population above 50%.
4. Moderate Price to Rent Ratio
The price to rent ratio is a real estate metric which people use to decide if they should rent a property or buy a home in a particular real estate market. It shows whether renting or buying is the cheapest option, in relative terms. A median price to rent ratio (16-20) is one of the best for investing in rental properties to rent out on long term basis. Such a housing market has high rental demand without compromising the rate of return for real estate investors.
Related: What Is Price to Rent Ratio in Real Estate?
5. Low Property Taxes
Real estate taxes are one of the recurring costs which landlords should take into consideration when doing investment property analysis. It can make the difference between negative and positive cash flow properties.
Related: Invest in Real Estate in These States with No Property Tax
6. Landlord Friendly States
Generally speaking, the real estate legislation in the vast majority of US real estate markets takes good care of the rights of both landlords and tenants. Nonetheless, some places offer a significantly more conducive investment environment than others. When performing real estate market analysis, investors – especially inexperienced ones – should look for landlord friendly locations.
Related: Invest in Real Estate in the 5 Most Landlord Friendly States
7. Affordable Property Prices
Last but not least, when looking for the best places to invest in real estate in 2020, beginner investors should focus on locations with affordable real estate prices. First of all, financing rental properties is easier in such cities, whether you pay in cash or apply for a mortgage loan. Second, ending of in a foreclosure is less of a risk. Third, the sale price is one of the most important determinants of the rate of return a rental property, together with the occupancy rate (or alternatively vacancy rate) and the monthly rental income. The lower the price, the highest the return on investment, all else equal.
How to Measure the Profitability of Rental Properties?
There are many different metrics which evaluate return on investment in real estate. One of the most popular, most important, most accurate, and most comprehensive measure is the cash on cash return, or CoC return for short.
What’s the most important advantage of cash on cash return over other measures of profitability for traditional rentals? Capitalization rate, or cap rate, is the second most widely used metric to analyze the potential of residential real estate properties. Compared to the cap rate, the cash on cash return allows investors to factor in the method of financing of their rental property. This is crucially important when buying an investment property with a mortgage, which is the majority of real estate investments, especially for new-comers. The rate of return varies widely with different mortgage types, different interest rates, and different payback periods, and the CoC return captures these differences.
How to Calculate Cash on Cash Return in Real Estate?
Now that you know that calculating cash on cash return is crucial for making profitable real estate investments in 2020, let’s see how it’s done:
Cash on Cash Return Formula
Cash on Cash Return = Annual Before-Tax Cash Flow/Total Cash Investment x 100%
This CoC return formula looks scary for someone who’s never used it before, mostly because it entails gathering all sorts of real estate data and analytics. However, finding all the property data online is possible and even easy in 2020. Just use Mashvisor’s cash on cash return calculator!
First of all, our investment property calculator will provide you with all the numbers and figures that you need for a rental property analysis including:
- Property price
- One-time startup costs
- Recurring monthly costs
- Traditional rental income
- Traditional occupancy rate
- Cash flow
What’s even better is that our rental property calculator will compute for you the expected traditional cash on cash return – as well as the traditional cap rate – for any real estate property for sale listed on the platform in addition to any other property you input. This eliminates completely the need to conduct manual investment property analysis. Investing in rental properties is all about using the right real estate investment tools in 2020!
What Are the Highest Traditional Cash on Cash Return Places in 2020?
Finally we’ve come to the essence of this article: where to buy rental property to rent out traditionally for the best cash on cash return in 2020! Following are the 20 best places for traditional cash on cash return in the US housing market. The calculations have been done by Mashvisor’s cash on cash return calculator using big data from across the US real estate market and predictive analytics.
1. Pittsburgh, PA
Pittsburgh Real Estate Market
- Traditional Cash on Cash Return: 3.4%
- Median Property Price: $280,800
- Traditional Rental Income: $1,240
- Price to Rent Ratio: 16
- Price to Square Foot: $70
- Real Estate Listings: 242
- Traditional Rental Listings: 1,360
- Walk Score: 50
2. Cathedral City, CA
- Traditional Cash on Cash Return: 3.2%
- Median Property Price: $342,000
- Traditional Rental Income: $1,920
- Price to Rent Ratio: 15
- Price per Square Foot: $230
- Real Estate Listings: 110
- Traditional Rental Listings: 96
- Walk Score: 20
3. Detroit, MI
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $168,700
- Traditional Rental Income: $1,030
- Price to Rent Ratio: 14
- Price per Square Foot: $83
- Real Estate Listings: 432
- Traditional Rental Listings: 3,347
- Walk Score: 52
4. Palm Springs, CA
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $610,000
- Traditional Rental Income: $2,940
- Price to Rent Ratio: 17
- Price per Square Foot: $378
- Real Estate Listings: 178
- Traditional Rental Listings: 279
- Walk Score: 63
5. Baltimore, MD
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $250,500
- Traditional Rental Income: $1,540
- Price to Rent Ratio: 14
- Price per Square Foot: $148
- Real Estate Listings: 1,140
- Traditional Rental Listings: 8,677
- Walk Score: 55
6. Philadelphia, PA
- Traditional Cash on Cash Return: 2.6%
- Median Property Price: $319,800
- Traditional Rental Income: $1,460
- Price to Rent Ratio: 18
- Price per Square Foot: $161
- Real Estate Listings: 430
- Traditional Rental Listings: 11,797
- Walk Score: 59
To learn more, read Philadelphia Real Estate Market Trends 2020.
7. Cincinnati, OH
- Traditional Cash on Cash Return: 2.5%
- Median Property Price: $248,000
- Traditional Rental Income: $1,200
- Price to Rent Ratio: 17
- Price per Square Foot: $109
- Real Estate Listings:
- Traditional Rental Listings:
- Walk Score: 47
8. Honolulu, HI
- Traditional Cash on Cash Return: 2.4%
- Median Property Price: $935,600
- Traditional Rental Income: $2,530
- Price to Rent Ratio: 31
- Price per Square Foot: $
- Real Estate Listings: 381
- Traditional Rental Listings: 738
- Walk Score:
9. Lake Worth, FL
- Traditional Cash on Cash Return: 2.2%
- Median Property Price: $306,700
- Traditional Rental Income: $1,940
- Price to Rent Ratio: 13
- Price per Square Foot: $189
- Real Estate Listings: 306
- Traditional Rental Listings: 854
- Walk Score: 47
10. Fort Wayne, FL
- Traditional Cash on Cash Return: 2.2%
- Median Property Price: $214,200
- Traditional Rental Income: $1,160
- Price to Rent Ratio: 15
- Price per Square Foot: $102
- Real Estate Listings: 961
- Traditional Rental Listings: 567
- Walk Score: 35
11. Indianapolis, IN
Indianapolis Real Estate Market
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $225,600
- Traditional Rental Income: $1,150
- Price to Rent Ratio: 16
- Price per Square Foot: $98
- Real Estate Listings: 1,512
- Traditional Rental Listings: 1,749
- Walk Score: 32
12. Saint Petersburg, FL
- Traditional Cash on Cash Return: 2.1%
- Median Property Price: $357,300
- Traditional Rental Income: $1,450
- Price to Rent Ratio: 20
- Price per Square Foot: $171
- Real Estate Listings: 48
- Traditional Rental Listings: 684
- Walk Score: 40
13. Atlanta, GA
- Traditional Cash on Cash Return: 2.0%
- Median Property Price: $436,500
- Traditional Rental Income: $2,060
- Price to Rent Ratio: 20
- Price per Square Foot: $206
- Real Estate Listings: 3,224
- Traditional Rental Listings: 6,306
- Walk Score: 43
To learn more, read Atlanta Real Estate Market Forecast 2020.
14. Memphis, TN
- Traditional Cash on Cash Return: 2.0%
- Median Property Price: $215,700
- Traditional Rental Income: $990
- Price to Rent Ratio: 18
- Price per Square Foot: $56
- Real Estate Listings: 676
- Traditional Rental Listings: 558
- Walk Score: 31
15. Gatlinburg, TN
- Traditional Cash on Cash Return: 2.0%
- Median Property Price: $404,300
- Traditional Rental Income: $1,690
- Price to Rent Ratio: 20
- Price per Square Foot: $204
- Real Estate Listings: 112
- Traditional Rental Listings: NA
- Walk Score: 59
To learn more, read Gatlinburg Real Estate: A Smart Investment for 2020.
16. Bradenton, FL
- Traditional Cash on Cash Return: 2.0%
- Median Property Price: $349,700
- Traditional Rental Income: $1,740
- Price to Rent Ratio: 17
- Price per Square Foot: $189
- Real Estate Listings: 473
- Traditional Rental Listings: 946
- Walk Score: 43
17. Clearwater, FL
- Traditional Cash on Cash Return: 2.0%
- Median Property Price: $365,000
- Traditional Rental Income: $1,640
- Price to Rent Ratio: 19
- Price per Square Foot: $223
- Real Estate Listings: 293
- Traditional Rental Listings: 1,344
- Walk Score: 33
18. Nashville, TN
- Traditional Cash on Cash Return: 1.9%
- Median Property Price: $432,400
- Traditional Rental Income: $1,750
- Price to Rent Ratio: 21
- Price per Square Foot: $208
- Real Estate Listings: 836
- Traditional Rental Listings: 2,288
- Walk Score: 40
To learn more, read Nashville Real Estate Market Trends 2020.
19. Denver, CO
- Traditional Cash on Cash Return: 1.9%
- Median Property Price: $436,500
- Traditional Rental Income: $1,890
- Price to Rent Ratio: 19
- Price per Square Foot: $274
- Real Estate Listings: 91
- Traditional Rental Listings: 1,829
- Walk Score: 54
20. Chandler, AZ
- Traditional Cash on Cash Return: 1.9%
- Median Property Price: $411,600
- Traditional Rental Income: $1,820
- Price to Rent Ratio: 19
- Price per Square Foot: $192
- Real Estate Listings: 422
- Traditional Rental Listings: 1,395
- Walk Score: 31
A few general remarks:
After reading through our list of the top 20 most profitable locations for traditional rental properties in 2020, you’ve noticed that they call offer a CoC return significantly below the recommend level of 8% or more. However, this should not discourage you from searching for top-performing investment properties in these markets. These are just city-average cash on cash returns, looking at all the traditional rentals available there. Indeed, the best neighborhoods for real estate investing and individual rental properties for sale in each of these cities offer much higher return on investment.
Related: What Is a Good Cash on Cash Return?
What’s Next?
Now that you know all there is to know about the cash on cash return and you are familiar with the most profitable locations for traditional rentals based on cash on cash return in 2020, what should you do?
- Choose a market: Select one of those locations depending on your preference and budget.
- Conduct neighborhood analysis: Rate of return varies drastically from one area to another within the same housing market. This means that you should conduct detailed neighborhood analysis to select the best one. Use Mashvisor’s heatmap tool to find neighborhoods based on: property listing price, traditional rental income, and traditional cash on cash return.
- Search for properties: The next step is property search for rentals which match your budget and other criteria such as property type, number of bedrooms and bathrooms, and optimal rental strategy (in this case, traditional rental strategy). Use Mashvisor’s Property Finder tool to optimize the process.
- Analyze properties for sale: After you’ve narrowed down your search to a few real estate listings which meet your expectations, it’s time for investment property analysis. Use Mashvisor’s cash on cash return calculator to find all the data and analytics which you need, with a few clicks of the mouse.
- Buy the property: Hire a real estate agent and move forward with the property purchase. There’s no reason to delay making money in real estate any further.
After reading our article, you know the 20 most profitable locations for traditional rentals in 2020 based on cash on cash return. All you need to do now is to sign up for Mashvisor to find top-performing traditional investment properties in any of these markets.
