The buy and hold real estate investment strategy was and continues to be the strategy of choice for many investors. It’s simply the purchase of rental properties with the intention of holding them for a long period. The reason why this is the most common strategy in real estate is that investors get to benefit from both monthly rental income and future appreciation. Moreover, buy and hold real estate investing is generally easier than flipping properties as no experience is necessary. Plus, you can hire professionals to manage your investment properties and, thus, start making passive income!
This is a great strategy for both beginner investors looking for a way to enter the business and experienced investors aiming to build wealth over the long haul. The key, however, to successful buy and hold rental properties is their location. As always, when it comes to rental properties, where they’re located plays a role in how much money they make and how much they appreciate. As a result, if you’re looking to start investing in real estate through buy and hold properties, it’s important to research the housing market to see if it makes for a profitable location to invest in.
Related: Location Location Location: What Makes for the Best Place to Invest in Real Estate?
Luckily for you, Mashvisor has already done the research on multiple cities across the US housing market. Keep reading to see which 9 cities have made it to the top of our list as the best places for buy and hold real estate investing. But first, let’s explain the factors that we’ve taken into consideration when creating this list.
What Makes for the Best Cities to Buy and Hold Real Estate?
1) Population Growth
The first indicator of a good location to invest in real estate is the city’s population. Simply, check whether people are moving into or out of the city. Experienced real estate investors never recommend buying rental property in a location where the population is shrinking. Naturally, this means high vacancy rates, weak demand for rentals, and low rental yields.
On the other hand, when people are moving to a city, they’re usually looking to live there for the long term. Moreover, in buy and hold real estate investing, you should think of yourself as a landlord. Landlords always want to have their properties located in markets where they can have a stable tenant base to keep their properties occupied and generate profits. Buying an investment property in a location with a growing population will ensure that you’ll have a larger pool of potential tenants and lower vacancy rates.
2) Job Growth
This indicator goes hand in hand with population growth. Usually, when job opportunities are created in a certain city, more people are attracted to move there. An increasing employment rate and a growing job market mean the city has a healthy economy. When investing in real estate in such cities, rental property investors have the ability to generate higher rental income. You can charge higher rent and tenants typically won’t have trouble paying.
In addition, multiple major employers in the city is also an indicator of a good place for buy and hold real estate investing. Typically, it’s risky to invest in a location where the economy is dependent on only one employer or one industry. It’s better for real estate investors to pursue investment opportunities in cities with more employer diversity as they typically have better real estate appreciation rates.
Note: According to Fit Small Business, a good annual appreciation rate for buy and hold real estate is between 3% and 5%.
3) Market Affordability
The final factor we took into consideration for making this list is the market’s affordability. This indicates whether renting or buying a house makes more financial sense to residents. If you’re in a market where the economy is improving but housing is expensive, for example, you’ll find that more people choose to rent a house over buying one. In other words, there’ll be a strong rental demand which makes it a good place to buy rental properties.
One way to easily measure the affordability of renting vs buying is by calculating the price to rent ratio. It is simply the ratio between the average sale price and annual rent in a given housing market. If the ratio is below 15, then you’re in a market where it’s better to buy a house than to rent one. If it’s between 16 and 20, then it’s typically more affordable to rent than to buy a house. And if the ratio is above 21, then it’s definitely better for people to rent a house. So, we can say that anywhere above 16 is a good ratio for buy and hold real estate investing.
Top Cities for Buy and Hold Real Estate Investing
Based on all of these factors, and after researching different markets, we’ve come up with the following list of the 9 best markets to buy and hold investment properties. You’ll notice that all these cities have a price to rent ratio of over 16 and have strong real estate appreciation rates of over 5%. Data regarding annual appreciation rates are provided by NeighborhoodScout while the rest are predictive analytics provided by Mashvisor’s Investment Property Calculator. To learn more about our product, click here.
In no particular order, here’s where you’ll have a potential to get a good return on investment from buy and hold real estate investing:
Nashville, TN
- Median Property Price: $438,957
- Price/Square Foot: $4,620
- Monthly Rental Income: $1,739
- Price to Rent Ratio: 21
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 9.92%
Jacksonville, FL
- Median Property Price: $306,025
- Price/Square Foot: $626
- Monthly Rental Income: $1,371
- Price to Rent Ratio: 19
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 10.62%
Philadelphia, PA
- Median Property Price: $323,165
- Price/Square Foot: $442
- Monthly Rental Income: $1,467
- Price to Rent Ratio: 18
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 5.85%
Indianapolis, IN
- Median Property Price: $226,167
- Price/Square Foot: $103
- Monthly Rental Income: $1,181
- Price to Rent Ratio: 16
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 9.28%
New Orleans, LA
- Median Property Price: $432,787
- Price/Square Foot: $239
- Monthly Rental Income: $1,732
- Price to Rent Ratio: 21
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 5.39%
Atlanta, GA
- Median Property Price: $436,452
- Price/Square Foot: $237
- Monthly Rental Income: $2,004
- Price to Rent Ratio: 18
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 11.17%
Denver, CO
- Median Property Price: $520,313
- Price/Square Foot: $289
- Monthly Rental Income: $2,098
- Price to Rent Ratio: 21
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 7.35%
Orlando, FL
- Median Property Price: $333,982
- Price/Square Foot: $172
- Monthly Rental Income: $1,650
- Price to Rent Ratio: 17
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 6.92%
Columbus, OH
- Median Property Price: $240,200
- Price/Square Foot: $139
- Monthly Rental Income: $1,190
- Price to Rent Ratio: 17
- Cash on Cash Return: 2%
- Annual Appreciation Rate: 8.43%
Start looking for and analyzing the best investment properties in your city/neighborhood of choice using Mashvisor’s tools and predictive analytics.
The Bottom Line
When done right, buy and hold real estate investing can yield great rental income and an impressive return on investment over the long term. So, if you buy one or two buy and hold investment properties a year, you can transform your real estate portfolio! No wonder why this is the most common investment strategy for building wealth in real estate. If you’re thinking of investing in such properties, make sure you do your due diligence and research the housing market well. Consider the above 9 cities as the best places to start if you’re not sure where you want to invest.
Keep in mind that even if a city’s real estate statistics seem low, you can still find profitable investment opportunities in some of its neighborhoods that you can capitalize on. Mashvisor’s real estate investment tools can help you with that! To find and analyze investment properties for sale within your budget and with good cash on cash return, start out your 7-day free trial with Mashvisor now.
Have you tried the buy and hold real estate investment strategy? If you have some tips and advice to share for beginner investors, leave a comment in the section below!