Looking for the best places to invest in real estate in 2020? You’ve come to the right place! In this article we’ll show you the 25 highest cap rate cities for traditional and Airbnb rentals.
Highest Cap Rate Cities for Traditional Rental Properties
Long term rentals remain a top real estate investing strategy. When combined with buy and hold, it turns into an excellent way for making money in real estate in both the short term (through rental income) and the long run (through real estate appreciation). If you think that this is the right rental strategy for you, have a look at the highest cap rate cities in 2020 for traditional rentals below. The estimates have been provided by Mashvisor’s cap rate calculator, a special type of an investment property calculator. Our tool uses big data and predictive analytics to compute reliable predictions for the US housing market trends in 2020.
Related: 5 Best Real Estate Investment Tools for 2020
1. Pittsburgh, PA
- Traditional Cap Rate: 3.4%
- Median Property Price: $280,800
- Traditional Rental Income: $1,240
- Price to Rent Ratio: 16
2. Cathedral City, CA
- Traditional Cap Rate: 3.2%
- Median Property Price: $342,000
- Traditional Rental Income: $1,920
- Price to Rent Ratio: 15
3. Detroit, MI
- Traditional Cap Rate: 2.9%
- Median Property Price: $168,700
- Traditional Rental Income: $1,030
- Price to Rent Ratio: 14
4. Palm Springs, CA
- Traditional Cap Rate: 2.9%
- Median Property Price: $610,000
- Traditional Rental Income: $2,940
- Price to Rent Ratio: 17
5. Baltimore, MD
- Traditional Cap Rate: 2.9%
- Median Property Price: $250,500
- Traditional Rental Income: $1,540
- Price to Rent Ratio: 14
6. Philadelphia, PA
- Traditional Cap Rate: 2.6%
- Median Property Price: $319,800
- Traditional Rental Income: $1,460
- Price to Rent Ratio: 18
7. Cincinnati, OH
- Traditional Cap Rate: 2.5%
- Median Property Price: $248,000
- Traditional Rental Income: $1,200
- Price to Rent Ratio: 17
8. Honolulu, HI
- Traditional Cap Rate: 2.4%
- Median Property Price: $935,600
- Traditional Rental Income: $2,530
- Price to Rent Ratio: 31
9. Lake Worth, FL
- Traditional Cap Rate: 2.2%
- Median Property Price: $306,700
- Traditional Rental Income: $1,940
- Price to Rent Ratio: 13
10. Fort Wayne, FL
- Traditional Cap Rate: 2.2%
- Median Property Price: $214,200
- Traditional Rental Income: $1,160
- Price to Rent Ratio: 15
11. Indianapolis, IN
- Traditional Cap Rate: 2.9%
- Median Property Price: $225,600
- Traditional Rental Income: $1,150
- Price to Rent Ratio: 16
12. Saint Petersburg, FL
- Traditional Cap Rate: 2.1%
- Median Property Price: $357,300
- Traditional Rental Income: $1,450
- Price to Rent Ratio: 20
13. Atlanta, GA
- Traditional Cap Rate: 2.0%
- Median Property Price: $436,500
- Traditional Rental Income: $2,060
- Price to Rent Ratio: 20
14. Memphis, TN
- Traditional Cap Rate: 2.0%
- Median Property Price: $215,700
- Traditional Rental Income: $990
- Price to Rent Ratio: 18
15. Gatlinburg, TN
- Traditional Cap Rate: 2.0%
- Median Property Price: $404,300
- Traditional Rental Income: $1,690
- Price to Rent Ratio: 20
16. Bradenton, FL
- Traditional Cap Rate: 2.0%
- Median Property Price: $349,700
- Traditional Rental Income: $1,740
- Price to Rent Ratio: 17
17. Clearwater, FL
- Traditional Cap Rate: 2.0%
- Median Property Price: $365,000
- Traditional Rental Income: $1,640
- Price to Rent Ratio: 19
18. Nashville, TN
- Traditional Cap Rate: 1.9%
- Median Property Price: $432,400
- Traditional Rental Income: $1,750
- Price to Rent Ratio: 21
19. Denver, CO
- Traditional Cap Rate: 1.9%
- Median Property Price: $436,500
- Traditional Rental Income: $1,890
- Price to Rent Ratio: 19
20. Chandler, AZ
- Traditional Cap Rate: 1.9%
- Median Property Price: $411,600
- Traditional Rental Income: $1,820
- Price to Rent Ratio: 19
21. Washington, DC
- Traditional Cap Rate: 1.8%
- Median Property Price: $685,300
- Traditional Rental Income: $2,690
- Price to Rent Ratio: 21
22. Jacksonville, FL
- Traditional Cap Rate: 1.8%
- Median Property Price: $257,400
- Traditional Rental Income: $1,300
- Price to Rent Ratio: 17
23. Orlando, FL
- Traditional Cap Rate: 1.8%
- Median Property Price: $337,300
- Traditional Rental Income: $1,700
- Price to Rent Ratio: 17
24. Tampa, FL
- Traditional Cap Rate: 1.8%
- Median Property Price: $377,900
- Traditional Rental Income: $1,730
- Price to Rent Ratio: 18
25. New Orleans, LA
- Traditional Cap Rate: 1.8%
- Median Property Price: $402,00
- Traditional Rental Income: $1,620
- Price to Rent Ratio: 21
For comparison, you can have a look at the highest cap rate cities in 2019.
Highest Cap Rate Cities for Airbnb Investment Properties
In recent years, Airbnb rentals have been competing with traditional rental properties for the position of the best rental strategy. In most real estate markets across the US and beyond short term rental properties emerge as the more profitable real estate investment strategy. So, if you’re after some good cash profit in 2020, Airbnb investment properties might be the right strategy for you. If you’re new to the real estate investing world and have no idea where to start, how about you have a look at the highest cap rate cities for Airbnb rental properties in 2020? Once again, the figures below have been computed by Mashvisor’s Airbnb profitability calculator, a type of a rental property calculator.
Related: Airbnb Data: What Real Estate Investors Need and Where to Get It
1. Fort Wayne, IN
- Airbnb Cap Rate: 10.4%
- Median Property Price: $214,200
- Airbnb Rental Income: $2,110
- Airbnb Occupancy Rate: 63.9%
2. Savannah, GA
- Airbnb Cap Rate: 9.2%
- Median Property Price: $380,800
- Airbnb Rental Income: $3,890
- Airbnb Occupancy Rate: 73.2%
3. Cincinnati, OH
- Airbnb Cap Rate: 8.9%
- Median Property Price: $248,000
- Airbnb Rental Income: $2,540
- Airbnb Occupancy Rate: 56.9%
4. Auburn, AL
- Airbnb Cap Rate: 8.5%
- Median Property Price: $325,200
- Airbnb Rental Income: $3,910
- Airbnb Occupancy Rate: 41.9%
5. Columbia, SC
- Airbnb Cap Rate: 8.3%
- Median Property Price: $266,400
- Airbnb Rental Income: $2,780
- Airbnb Occupancy Rate: 51.6%
6. Memphis, TN
- Airbnb Cap Rate: 8.1%
- Median Property Price: $215,700
- Airbnb Rental Income: $2,050
- Airbnb Occupancy Rate: 65.2%
7. Charleston, SC
- Airbnb Cap Rate: 7.9%
- Median Property Price: $658,200
- Airbnb Rental Income: $4,770
- Airbnb Occupancy Rate: 64.9%
8. Pittsburgh, PA
- Airbnb Cap Rate: 7.4%
- Median Property Price: $230,800
- Airbnb Rental Income: $2,090
- Airbnb Occupancy Rate: 51.4%
9. Gatlinburg, TN
- Airbnb Cap Rate: 7.2%
- Median Property Price: $404,300
- Airbnb Rental Income: $3,830
- Airbnb Occupancy Rate: 70.3%
10. Myrtle Beach, SC
- Airbnb Cap Rate: 6.8%
- Median Property Price: $241,600
- Airbnb Rental Income: $3,060
- Airbnb Occupancy Rate: 57.4%
11. Virginia Beach, VA
- Airbnb Cap Rate: 6.7%
- Median Property Price: $372,200
- Airbnb Rental Income: $3,600
- Airbnb Occupancy Rate: 53.5%
12. Joshua Tree, CA
- Airbnb Cap Rate: 6.7%
- Median Property Price: $315,000
- Airbnb Rental Income: $2,960
- Airbnb Occupancy Rate: 55.1%
13. Oklahoma City, OK
- Airbnb Cap Rate: 6.5%
- Median Property Price: $217,900
- Airbnb Rental Income: $2,620
- Airbnb Occupancy Rate: 69.8%
14. Las Vegas, NV
- Airbnb Cap Rate: 6.5%
- Median Property Price: $380,700
- Airbnb Rental Income: $3,280
- Airbnb Occupancy Rate: 57.7%
15. Fayetteville, NC
- Airbnb Cap Rate: 6.4%
- Median Property Price: $182,100
- Airbnb Rental Income: $1,950
- Airbnb Occupancy Rate: 61.4%
16. Louisville, KY
- Airbnb Cap Rate: 6.4%
- Median Property Price: $254,500
- Airbnb Rental Income: $2,610
- Airbnb Occupancy Rate: 54.1%
17. Indianapolis, IN
- Airbnb Cap Rate: 5.9%
- Median Property Price: $225,600
- Airbnb Rental Income: $2,070
- Airbnb Occupancy Rate: 50.6%
18. Richmond, VA
- Airbnb Cap Rate: 5.7%
- Median Property Price: $333,700
- Airbnb Rental Income: $2,710
- Airbnb Occupancy Rate: 58.2%
19. Madison, WI
- Airbnb Cap Rate: 5.5%
- Median Property Price: $352,000
- Airbnb Rental Income: $3,580
- Airbnb Occupancy Rate: 61.4%
20. Nashville, TN
- Airbnb Cap Rate: 5.4%
- Median Property Price: $432,400
- Airbnb Rental Income: $3,590
- Airbnb Occupancy Rate: 63.1%
21. Lexington, KY
- Airbnb Cap Rate: 5.3%
- Median Property Price: $304,600
- Airbnb Rental Income: $2,450
- Airbnb Occupancy Rate: 54.2%
22. Columbus, OH
- Airbnb Cap Rate: 5.3%
- Median Property Price: $229,800
- Airbnb Rental Income: $2,380
- Airbnb Occupancy Rate: 56.0%
23. Detroit, MI
- Airbnb Cap Rate: 5.2%
- Median Property Price: $168,700
- Airbnb Rental Income: $2,030
- Airbnb Occupancy Rate: 51.0%
24. New Orleans, LA
- Airbnb Cap Rate: 5.2%
- Median Property Price: $402,000
- Airbnb Rental Income: $2,890
- Airbnb Occupancy Rate: 56.0%
25. Fresno, CA
- Airbnb Cap Rate: 5.2%
- Median Property Price: $354,900
- Airbnb Rental Income: $3,120
- Airbnb Occupancy Rate: 70.2%
Related: 10 Best Places for Buying a Vacation Home in 2020
What Is Cap Rate and How to Calculate It?
Let’s take a step back. Beginner real estate investors might not be familiar with the concept of capitalization rate, or cap rate for short, how to find it, and why to use it. So, let’s have a look at each one of these issues.
What Is Cap Rate for Investment Properties?
Capitalization rate is one of the most popular metrics of rate of return on rental properties which measures how much money you make from an income property proportionate to its purchase price or its current market value. That’s why it makes perfect sense to look for the highest cap rate cities in the US real estate market in 2020.
One of the best features of the cap rate is that it is easy to calculate and straightforward to use. However, it has one major disadvantage: it does not take into consideration the method of financing of a rental property. Nevertheless, it is one of the best ways out there to compare the profitability potential of a few rental properties for sale and of entire real estate markets.
Cap rate is also a measure of the risk associated with investing in rental properties. Just like any other investment strategy, real estate properties bring a certain degree of risk although it’s much lower than with other popular investment strategies such as stocks. That’s why having a very high cap rate is not recommended. While it might bring you a high return on investment, it is also very risky.
How to Calculate Cap Rate in Residential Real Estate Investments
Calculating the capitalization rate is easy using the following formula:
Cap Rate Formula
Cap Rate = Net Operating Income (NOI)/Current Market Value
The net operating income (NOI) is the difference between the monthly rental income (gross rental income) and the recurring monthly expenses (rental expenses). While this might sound simple, you’ll need to be able to find quite a good amount of property data online to complete the calculations.
No worries. Mashvisor’s investment property analysis tools provide you with all the estimates you need to calculate the NOI. You can see a sample in the image below which shows a part of the rental property analysis of an income property in the Scotts Crossing neighborhood of the Atlanta real estate market.
Mashvisor’s Investment Property Calculator: Recurring Monthly Expenses
Even better, Mashvisior’s cap rate calculator calculates the traditional and Airbnb cap rate of any property listed on our platform (including MLS listings, foreclosures, bank owned homes, short sales, and off market properties) as well as any investment property for sale that you input through the Mashboard. In this way, you can compare the return on investment promised by hundreds of rental properties in any US housing market to choose the most profitable one which meets all your expectations and criteria.
Below you can see the estimated traditional and Airbnb cap rate of the same Atlanta investment property from above.
Mashvisor’s Cap Rate Calculator: Traditional and Airbnb Cap Rate
Related: Atlanta Real Estate Market Forecast 2020
What Is a Good Cap Rate in Real Estate Investing?
That’s one of the most frequently asked questions in real estate. The typical answer with which most real estate experts agree is that a good cap rate is 8-12%. A capitalization rate in this range usually offers a good balance between the rate of return and the risk of buying and owning a certain income property.
Related: What’s a Good Cap Rate for Investment Properties?
What Can We Say About the Best Cap Rate by City in 2020?
There are a few major features which stick out when analyzing the highest cap rate real estate markets in the coming year. Here’s a quick summary of them:
1. The highest cap rate cities for long term rental properties in 2020 will range from 1.8% in the New Orleans real estate market to 3.4% in the Pittsburgh real estate market. The median cap rate by city will be 2.0% in the Atlanta housing market.
2. The best cap rate cities for Airbnb rentals in 2020 will offer a return on investment between 5.2% in the Fresno real estate market and 10.4% in the Fort Wayne real estate market. The median value will be 6.5% in the Oklahoma City real estate market.
3. The rate of return in these top locations for real estate investing in 2020 will be below what is considered a good cap rate. However, beginner real estate investors should keep in mind that these are only average values for the cities, while some neighborhoods and certain investment properties will offer a significantly higher return. To conduct neighborhood analysis in real estate quickly and efficiently to find the highest cap rate areas, use Mashvisor’s investment property calculator. To find top-performing rental properties for sale in any city in the US housing market, according to your budget, preferred property type, and rental strategy, use Mashvisor’s Property Finder.
4. Short term rentals will be the more profitable rental strategy in 2020. The cap rates offered by Airbnb investment properties exceed traditional cap rates significantly. One of the main reasons for this is the high Airbnb occupancy rate in these best markets to invest in real estate.
5. Short term rental properties face certain Airbnb laws and regulations in some of the highest cap rate cities in 2020. For example, short term rentals of less than 30 days are not allowed in the Las Vegas real estate market. Nevertheless, property investors can go for Airbnb long term rentals. So, before you decide where to invest in real estate Airbnb rentals in 2020, check out the local legislation to know what to expect.
Ready to start making money from real estate in 2020? Sign up for Mashvisor now to get access to our real estate investment tools for finding top-performing rental properties in any of the highest cap rate cities in the US.
