Are you thinking of starting a real estate investing business in 2021? Then one of the most pressing questions on your mind probably is: What are the best places to invest in real estate this year? Well, you’ve come to the right place! In this article we are going to look at the highest cap rate cities in 2021 across the US housing market. We’ve ranked the 25 top markets for traditional rentals and the 25 most profitable locations for Airbnb rentals based on Mashvisor’s real estate data and analysis.
25 Highest Cap Rate Cities for Long-Term Rental Properties in 2021
Traditional rental properties have always been one of the best ways to get started in real estate. They offer the opportunity to make money both in the short term – through rental income – and in the long run – through real estate appreciation. Moreover, you can easily turn your long-term rental into a source of passive income by hiring a professional property manager to manage the day-to-day operations of your real estate business.
The key to making a profitable real estate investment decision with this rental strategy is to buy an income property in one of the leading locations for renting out on a long-term basis. If you are new to the exciting world of real estate investing and don’t know where to start, we are providing you with a list of the 25 US housing markets which offer the highest return on investment for traditional rentals in 2021. We’ve gathered real estate and rental data from the entire US residential real estate market before applying our machine-learning algorithms to it to calculate the cap rates by city in 2021. In this way we’ve been able to rank the 25 top locations for long-term rental properties this year:
1. Shreveport, LA
Shreveport, LA is the US city with the highest traditional cap rate in 2021
- Traditional Cap Rate: 4.51%
- Traditional Rental Income: $1,210
- Median Property Price: $254,700
- Average Price per Square Foot: $113
- Price to Rent Ratio: 17
- Listings for Sale: 395
- Traditional Rental Listings: 114
2. Detroit, MI
- Traditional Cap Rate: 4.10%
- Traditional Rental Income: $1,020
- Median Property Price: $178,900
- Average Price per Square Foot: $124
- Price to Rent Ratio: 15
- Listings for Sale: 343
- Traditional Rental Listings: 1,844
3. Jackson, MS
- Traditional Cap Rate: 4.05%
- Traditional Rental Income: $1,430
- Median Property Price: $290,200
- Average Price per Square Foot: $71
- Price to Rent Ratio: 17
- Listings for Sale: 131
- Traditional Rental Listings: 247
4. Columbia, SC
- Traditional Cap Rate: 4.04%
- Traditional Rental Income: $1,250
- Median Property Price: $264,300
- Average Price per Square Foot: $134
- Price to Rent Ratio: 18
- Listings for Sale: 135
- Traditional Rental Listings: 485
5. Mesquite, TX
- Traditional Cap Rate: 3.89%
- Traditional Rental Income: $1,510
- Median Property Price: $241,900
- Average Price per Square Foot: $140
- Price to Rent Ratio: 13
- Listings for Sale: 184
- Traditional Rental Listings: 184
6. Baltimore, MD
- Traditional Cap Rate: 3.77%
- Traditional Rental Income: $1,660
- Median Property Price: $327,900
- Average Price per Square Foot: $195
- Price to Rent Ratio: 16
- Listings for Sale: 1,085
- Traditional Rental Listings: 5,158
7. Fayetteville, NC
- Traditional Cap Rate: 3.67%
- Traditional Rental Income: $1,170
- Median Property Price: $235,700
- Average Price per Square Foot: $136
- Price to Rent Ratio: 17
- Listings for Sale: 856
- Traditional Rental Listings: 2,231
8. Syracuse, NY
- Traditional Cap Rate: 3.66%
- Traditional Rental Income: $1,220
- Median Property Price: $188,800
- Average Price per Square Foot: $105
- Price to Rent Ratio: 13
- Listings for Sale: 105
- Traditional Rental Listings: 189
9. Chesapeake, VA
- Traditional Cap Rate: 3.59%
- Traditional Rental Income: $1,660
- Median Property Price: $330,400
- Average Price per Square Foot: $173
- Price to Rent Ratio: 17
- Listings for Sale: 239
- Traditional Rental Listings: 455
10. Norfolk, VA
- Traditional Cap Rate: 3.44%
- Traditional Rental Income: $1,530
- Median Property Price: $341,100
- Average Price per Square Foot: $177
- Price to Rent Ratio: 19
- Listings for Sale: 274
- Traditional Rental Listings: 980
11. Alexandria, VA
- Traditional Cap Rate: 3.43%
- Traditional Rental Income: $2,380
- Median Property Price: $555,100
- Average Price per Square Foot: $394
- Price to Rent Ratio: 19
- Listings for Sale: 439
- Traditional Rental Listings: 1,645
12. Baton Rouge, LA
- Traditional Cap Rate: 3.43%
- Traditional Rental Income: $1,360
- Median Property Price: $349,800
- Average Price per Square Foot: $156
- Price to Rent Ratio: 21
- Listings for Sale: 257
- Traditional Rental Listings: 284
13. Wichita, KS
- Traditional Cap Rate: 3.35%
- Traditional Rental Income: $1,010
- Median Property Price: $233,300
- Average Price per Square Foot: $118
- Price to Rent Ratio: 19
- Listings for Sale: 120
- Traditional Rental Listings: 331
14. Fort Wayne, IN
- Traditional Cap Rate: 3.34%
- Traditional Rental Income: $1,180
- Median Property Price: $269,400
- Average Price per Square Foot: $133
- Price to Rent Ratio: 19
- Listings for Sale: 558
- Traditional Rental Listings: 438
15. Sandy Springs, GA
- Traditional Cap Rate: 3.32%
- Traditional Rental Income: $2,320
- Median Property Price: $455,500
- Average Price per Square Foot: $220
- Price to Rent Ratio: 16
- Listings for Sale: 162
- Traditional Rental Listings: 203
16. Augusta, GA
- Traditional Cap Rate: 3.30%
- Traditional Rental Income: $1,050
- Median Property Price: $263,200
- Average Price per Square Foot: $127
- Price to Rent Ratio: 21
- Listings for Sale: 209
- Traditional Rental Listings: 542
17. Akron, OH
- Traditional Cap Rate: 3.30%
- Traditional Rental Income: $860
- Median Property Price: $176,500
- Average Price per Square Foot: $113
- Price to Rent Ratio: 17
- Listings for Sale: 317
- Traditional Rental Listings: 285
18. West Palm Beach, FL
- Traditional Cap Rate: 3.27%
- Traditional Rental Income: $1,670
- Median Property Price: $322,700
- Average Price per Square Foot: $213
- Price to Rent Ratio: 16
- Listings for Sale: 349
- Traditional Rental Listings: 1,873
19. Louisville, KY
- Traditional Cap Rate: 3.27%
- Traditional Rental Income: $1,280
- Median Property Price: $278,100
- Average Price per Square Foot: $145
- Price to Rent Ratio: 18
- Listings for Sale: 791
- Traditional Rental Listings: 547
20. Indianapolis, IN
- Traditional Cap Rate: 3.26%
- Traditional Rental Income: $1,120
- Median Property Price: $270,200
- Average Price per Square Foot: $143
- Price to Rent Ratio: 20
- Listings for Sale: 1,023
- Traditional Rental Listings: 920
21. Cleveland, OH
- Traditional Cap Rate: 3.21%
- Traditional Rental Income: $1,020
- Median Property Price: $205,500
- Average Price per Square Foot: $131
- Price to Rent Ratio: 17
- Listings for Sale: 443
- Traditional Rental Listings: 722
22. Birmingham, AL
- Traditional Cap Rate: 3.14%
- Traditional Rental Income: $1,260
- Median Property Price: $320,100
- Average Price per Square Foot: $227
- Price to Rent Ratio: 21
- Listings for Sale: 281
- Traditional Rental Listings: 253
23. Abilene, TX
- Traditional Cap Rate: 3.13%
- Traditional Rental Income: $1,360
- Median Property Price: $264,000
- Average Price per Square Foot: $133
- Price to Rent Ratio: 16
- Listings for Sale: 357
- Traditional Rental Listings: 813
24. Chattanooga, TN
- Traditional Cap Rate: 3.11%
- Traditional Rental Income: $1,500
- Median Property Price: $367,900
- Average Price per Square Foot: $197
- Price to Rent Ratio: 20
- Listings for Sale: 554
- Traditional Rental Listings: 228
25. Philadelphia, PA
- Traditional Cap Rate: 3.10%
- Traditional Rental Income: $1,550
- Median Property Price: $405,600
- Average Price per Square Foot: $267
- Price to Rent Ratio: 22
- Listings for Sale: 1,808
- Traditional Rental Listings: 9,804
Related: The 40 Most Profitable Locations for Traditional Rentals in 2021: Cash on Cash Return
25 Highest Cap Rate Cities for Short-Term Rental Rental Properties in 2021
Since the establishment of Airbnb.com and other homesharing platforms such as Vrbo, Booking.com, and HomeAway, short-term rentals – or vacation home rentals – have emerged as the more profitable rental strategy. Last year many real estate investors and other experts were concerned that the Coronavirus pandemic might put an end to the blooming Airbnb rental industry. Their concerns were valid after the initial drop in Airbnb occupancy rate and Airbnb income throughout the US real estate market.
However, the short-term rental industry showed its resilience and that it is here to stay. Mashvisor’s Airbnb market analysis showed that by September 2020 the short-term rental occupancy rate was already on the road to recovery and that by September 2021 it is expected to be back to sustainable growth.
Our further analysis of nationwide Airbnb data shows that in 2021 this is once again the more lucrative real estate investment strategy, both for beginner and experienced investors. So, if you think that this might be the winner for you in the Airbnb vs. traditional rental dilemma, check out the 25 best locations for buying an Airbnb property in 2021:
1. Jackson, MS
Jackson, MS is the US city with the highest Airbnb cap rate in 2021
- Airbnb Cap Rate: 6.63%
- Airbnb Rental Income: $3,160
- Airbnb Daily Rate: $100
- Airbnb Occupancy Rate: 69%
- Median Property Price: $290,200
- Average Price per Square Foot: $71
- Listings for Sale: 131
- Airbnb Rental Listings: 1,412
2. Abilene, TX
- Airbnb Cap Rate: 6.61%
- Airbnb Rental Income: $2,630
- Airbnb Daily Rate: $175
- Airbnb Occupancy Rate: 65%
- Median Property Price: $264,000
- Average Price per Square Foot: $133
- Listings for Sale: 357
- Airbnb Rental Listings: 282
3. Visalia, CA
- Airbnb Cap Rate: 6.32%
- Airbnb Rental Income: $3,350
- Airbnb Daily Rate: $103
- Airbnb Occupancy Rate: 81%
- Median Property Price: $413,200
- Average Price per Square Foot: $202
- Listings for Sale: 113
- Airbnb Rental Listings: 104
4. Fort Wayne, IN
- Airbnb Cap Rate: 6.03%
- Airbnb Rental Income: $2,360
- Airbnb Daily Rate: $84
- Airbnb Occupancy Rate: 69%
- Median Property Price: $269,400
- Average Price per Square Foot: $133
- Listings for Sale: 558
- Airbnb Rental Listings: 4,336
5. Fayetteville, NC
- Airbnb Cap Rate: 5.93%
- Airbnb Rental Income: $2,230
- Airbnb Daily Rate: $100
- Airbnb Occupancy Rate: 73%
- Median Property Price: $235,700
- Average Price per Square Foot: $136
- Listings for Sale: 856
- Airbnb Rental Listings: 1,252
6. San Angelo, TX
- Airbnb Cap Rate: 5.88%
- Airbnb Rental Income: $2,880
- Airbnb Daily Rate: $125
- Airbnb Occupancy Rate: 76%
- Median Property Price: $410,600
- Average Price per Square Foot: $162
- Listings for Sale: 174
- Airbnb Rental Listings: 167
7. Bakersfield, CA
- Airbnb Cap Rate: 5.86%
- Airbnb Rental Income: $3,360
- Airbnb Daily Rate: $144
- Airbnb Occupancy Rate: 78%
- Median Property Price: $416,800
- Average Price per Square Foot: $275
- Listings for Sale: 132
- Airbnb Rental Listings: 777
8. Richmond, VA
- Airbnb Cap Rate: 5.75%
- Airbnb Rental Income: $3,260
- Airbnb Daily Rate: $142
- Airbnb Occupancy Rate: 68%
- Median Property Price: $387,400
- Average Price per Square Foot: $201
- Listings for Sale: 855
- Airbnb Rental Listings: 5,739
9. Virginia Beach, VA
- Airbnb Cap Rate: 5.65%
- Airbnb Rental Income: $3,640
- Airbnb Daily Rate: $250
- Airbnb Occupancy Rate: 56%
- Median Property Price: $441,000
- Average Price per Square Foot: $230
- Listings for Sale: 389
- Airbnb Rental Listings: 1,266
10. San Bernardino, CA
- Airbnb Cap Rate: 5.54%
- Airbnb Rental Income: $3,180
- Airbnb Daily Rate: $132
- Airbnb Occupancy Rate: 75%
- Median Property Price: $411,200
- Average Price per Square Foot: $291
- Listings for Sale: 346
- Airbnb Rental Listings: 254
11. Akron, OH
- Airbnb Cap Rate: 5.53%
- Airbnb Rental Income: $1,870
- Airbnb Daily Rate: $88
- Airbnb Occupancy Rate: 62%
- Median Property Price: $176,500
- Average Price per Square Foot: $113
- Listings for Sale: 317
- Airbnb Rental Listings: 235
12. Springfield, MO
- Airbnb Cap Rate: 5.52%
- Airbnb Rental Income: $2,100
- Airbnb Daily Rate: $104
- Airbnb Occupancy Rate: 58%
- Median Property Price: $284,700
- Average Price per Square Foot: $125
- Listings for Sale: 228
- Airbnb Rental Listings: 1,092
13. Riverside, CA
- Airbnb Cap Rate: 5.52%
- Airbnb Rental Income: $4,820
- Airbnb Daily Rate: $159
- Airbnb Occupancy Rate: 65%
- Median Property Price: $575,200
- Average Price per Square Foot: $326
- Listings for Sale: 414
- Airbnb Rental Listings: 324
14. Columbus, GA
- Airbnb Cap Rate: 5.42%
- Airbnb Rental Income: $1,980
- Airbnb Daily Rate: $103
- Airbnb Occupancy Rate: 71%
- Median Property Price: $234,900
- Average Price per Square Foot: $119
- Listings for Sale: 106
- Airbnb Rental Listings: 717
15. Norfolk, VA
- Airbnb Cap Rate: 5.38%
- Airbnb Rental Income: $3,050
- Airbnb Daily Rate: $153
- Airbnb Occupancy Rate: 64%
- Median Property Price: $341,100
- Average Price per Square Foot: $177
- Listings for Sale: 274
- Airbnb Rental Listings: 1,745
16. Wichita, KS
- Airbnb Cap Rate: 5.37%
- Airbnb Rental Income: $1,850
- Airbnb Daily Rate: $99
- Airbnb Occupancy Rate: 61%
- Median Property Price: $233,300
- Average Price per Square Foot: $118
- Listings for Sale: 120
- Airbnb Rental Listings: 898
17. Independence, MO
- Airbnb Cap Rate: 5.35%
- Airbnb Rental Income: $1,690
- Airbnb Daily Rate: $107
- Airbnb Occupancy Rate: 63%
- Median Property Price: $210,400
- Average Price per Square Foot: $117
- Listings for Sale: 168
- Airbnb Rental Listings: 423
18. Las Cruces, NM
- Airbnb Cap Rate: 5.32%
- Airbnb Rental Income: $2,330
- Airbnb Daily Rate: $77
- Airbnb Occupancy Rate: 70%
- Median Property Price: $308,700
- Average Price per Square Foot: $142
- Listings for Sale: 396
- Airbnb Rental Listings: 123
19. Arlington, TX
- Airbnb Cap Rate: 5.29%
- Airbnb Rental Income: $3,150
- Airbnb Daily Rate: $172
- Airbnb Occupancy Rate: 70%
- Median Property Price: $320,300
- Average Price per Square Foot: $156
- Listings for Sale: 426
- Airbnb Rental Listings: 1,788
20. Tucson, AZ
- Airbnb Cap Rate: 5.06%
- Airbnb Rental Income: $2,740
- Airbnb Daily Rate: $101
- Airbnb Occupancy Rate: 66%
- Median Property Price: $345,700
- Average Price per Square Foot: $189
- Listings for Sale: 820
- Airbnb Rental Listings: 7,711
21. Henderson, NV
- Airbnb Cap Rate: 5.03%
- Airbnb Rental Income: $4,270
- Airbnb Daily Rate: $230
- Airbnb Occupancy Rate: 71%
- Median Property Price: $708,700
- Average Price per Square Foot: $269
- Listings for Sale: 435
- Airbnb Rental Listings: 311
22. Little Rock, AR
- Airbnb Cap Rate: 5.00%
- Airbnb Rental Income: $2,770
- Airbnb Daily Rate: $102
- Airbnb Occupancy Rate: 77%
- Median Property Price: $326,300
- Average Price per Square Foot: $139
- Listings for Sale: 332
- Airbnb Rental Listings: 660
23. Colorado Springs, CO
- Airbnb Cap Rate: 5.00%
- Airbnb Rental Income: $3,290
- Airbnb Daily Rate: $150
- Airbnb Occupancy Rate: 65%
- Median Property Price: $495,800
- Average Price per Square Foot: $216
- Listings for Sale: 325
- Airbnb Rental Listings: 435
24. Baton Rouge, LA
- Airbnb Cap Rate: 4.83%
- Airbnb Rental Income: $2,590
- Airbnb Daily Rate: $129
- Airbnb Occupancy Rate: 57%
- Median Property Price: $349,800
- Average Price per Square Foot: $156
- Listings for Sale: 257
- Airbnb Rental Listings: 832
25. Gilbert, AZ
- Airbnb Cap Rate: 4.77%
- Airbnb Rental Income: $3,720
- Airbnb Daily Rate: $198
- Airbnb Occupancy Rate: 68%
- Median Property Price: $517,700
- Average Price per Square Foot: $236
- Listings for Sale: 182
- Airbnb Rental Listings: 3,433
Related: 8 Best Cities for Airbnb Investment in 2021
If you’d like to see what changes have taken place in terms of the highest cap rate cities since 2020, you can check them out here.
What Is Capitalization Rate in Real Estate Investing and How Do You Calculate It?
For savvy real estate investors, it is not enough to just take our word for granted that the highest cap rate cities are the best locations for buying rental property. For them, it’s important to understand what exactly the capitalization rate – or cap rate – is, how to calculate, and how to use it to make the best real estate investments in 2021.
So, let’s take a look at all these really important questions in rental property investment:
What Is a Cap Rate in Real Estate?
To begin with, the cap rate is one of the most popular metrics for return on investment in real estate. While some experts claim that it should be used only in commercial real estate investing, this measure is very useful in residential real estate investing as well. The reason is that it helps investors compare rental markets and investment properties for sale quickly and efficiently, without wasting too much time and effort.
So, since the cap rate measures how much profit you will make on an income property for sale, it makes perfect sense to invest in rental properties in the highest cap rate cities across the US housing market 2021.
How to Calculate Cap Rate for Income Property Investments?
One of the best features of the cap rate calculation is that it is relatively easy to calculate. This is in contrast to the cash on cash return, which requires much more real estate data and calculations. That’s what makes the capitalization rate the preferred method for rental property valuation for many investors.
To calculate cap rate, all you need to do is to divide the net operating income (NOI) by the sales price or the current market value of the investment property.
The net operating income of rental homes is the annual rental income minus the rental expenses. The former equals the monthly rental rate multiplied by 12, while the latter includes reasonable costs related to owning and running a rental business such as property management, property maintenance, cleaning fees (if running an Airbnb business), and others.
As you might have noticed from the cap rate formula, it does not take into account the method of financing of your rental property. However, the terms and conditions of various real estate investment loans have a major impact on the profitability of an income property. That’s why this is the main shortcoming of this metric and why experienced investors recommend always using it together with the cash on cash return measure.
What Is a Good Cap Rate for Rental Property?
To make profitable real estate investments, you need to know what is considered a good cap rate. The answer is quite straightforward: 8-12%.
This might sound a bit counterintuitive for beginner investors. After all, if the cap rate measures profitability, don’t you want it to be as high as possible?
Well, that’s one side of the coin. On the other side is the fact that the capitalization rate also indicates how risky investing in a certain rental property is. Naturally, the higher the risk, the higher the return on investment.
That’s why when buying an investment property, landlords and Airbnb hosts should look for a high cap rate, but within a reasonable limit. Generally speaking, traditional and Airbnb rental properties with 8-12% cap rate make for the most profitable and the most reliable investment opportunities. Of course, you still need to do a diligent rental market analysis and investment property analysis before putting your money in a property.
Is There Another Way to Calculate Cap Rate?
Even though the capitalization rate is much easier and faster to calculate than other metrics such as cash on cash return, it still requires collecting tons of real estate data and rental comps and making numerous calculations in a rental property analysis spreadsheet.
In 2021 investing in rental properties is all about being able to make fast, smart, and confident decisions, based on reliable data and analytics. In the current hot seller’s market, it’s crucial to be able to make an offer and move forward with a purchase before other home buyers and real estate investors get your property.
That’s why you should get access to the best real estate investment tools in 2021 which will help you analyze and make sense of big data faster and more efficiently. You no longer have 3 months to conduct the real estate market analysis and rental property analysis required for profitable decisions.
Alternatively, you can sign up for Mashvisor, the leading real estate investment software in the 2021 US housing market. We will provide you with all the tools that you need to analyze neighborhoods and properties for sale like never before.
Related: A Cap Rate Calculator That Calculates So Much More
What Should You Know About the Cities with the Best Cap Rates in 2021?
We understand that seeing all these numbers and figures can be a bit overwhelming, so let’s analyze the most important trends in the highest cap rate cities for this year:
- The cap rates by city for the 25 markets with the highest rate of return for traditional rental properties range from 3.10% in the Philadelphia real estate market in Pennsylvania to 4.51% in Shreveport in the Louisiana housing market. Meanwhile, the median cap rate is 3.35% in Wichita, Kansas.
- For Airbnb rental properties, the capitalization rate is in the range between 4.77% in Gilbert in the Arizona housing market and 6.63% in Jackson in the Mississippi real estate market. The median value is 5.52% in Riverside in the California real estate market.
- Despite the initial shock of the Covid-19 pandemic, short-term rentals emerged once again as the more profitable rental strategy in the US market, generally speaking. Of course, with the help of the right tools, you are able to find good investment opportunities for both rental strategies.
- The highest cap rate cities for both real estate investment strategies offer an average return on investment below what is considered a good cap rate. However, this does not mean that there are no profitable rental properties for sale in the US in 2021. When analyzing these numbers, you should keep in mind that they are just city averages, while it is absolutely possible to find neighborhoods and real estate listings which offer a significantly higher rate of return. To do that, you need to conduct diligent neighborhood analysis and careful investment property search. Mashvisor’s real estate heatmap and investment property calculator can help you do that.
- The vast majority of these cities comprise some of the most affordable real estate markets in 2021. Only a few of them have a median value for MLS listings above the $500,000 threshold. Buying cheap real estate is not only one of the ways to generate a high return but also a good way to avoid a foreclosure.
Related: 8 Cheapest States to Buy a House for Investment in 2021
- While in 2021 you can find cities with good cap rate across the US housing market, there is still some geographical concentration. In specific, the most cities with high traditional cap rate are located in the Virginia real estate market, the Texas housing market, the Indiana real estate market, and the Georgia housing market. At the same time, the highest cap rate cities for Airbnb are concentrated in California, Arizona, Virginia, Texas, and Missouri.
- There are a number of locations which are on the list for cities with the highest cap rates for both traditional and Airbnb income properties. The Fort Wayne real estate market in Indiana and the Abilene housing market in Texas are two such examples. These cities are definitely the absolute best places to buy a rental property in 2021 as you can easily switch your rental strategy (if you decide you made the wrong decision the first time) and still retain a positive cash flow property with a good return on investment.
- With regards to short-term rental properties, these markets exhibit varying Airbnb laws and regulations. So, it is crucially important to study the local legislation before buying a vacation home to rent out in these markets or any other US city. This is the only way to avoid legal issues with the local authorities.
Now that you know the highest cap rate cities in 2021, all that’s left is to decide on one of them and start looking for profitable investment properties there. Sign up for Mashvisor now to turn 3 months of real estate research and analysis into 15 minutes.
