6 Best Places To Buy An Investment Rental Property
Buying an investment property is a great strategy to build long-term personal wealth. The U.S. real estate market is booming, and experts forecast that it will continue to grow in this new decade, so the time to buy an investment rental property is now!
Before we dig into the 6 best places to buy an investment property, we need to understand what makes a good rental.
We explain to our investors that a good investment rental property should yield a high rental cap rate. This is when you take the purchase price of the home, plus any additional initial expenses to condition the property before listing it and compare it to the rental income the property would generate in one year. Cheaper houses with high rental incomes are the best options and produce a high rental cap.
Most places in the list are in Florida, as there is no state income tax, which makes the state a hot market for real estate investors!
Where We Consider The Best Places To Buy An Investment Property to Rent
Jacksonville Metro Area (Duval County)
The Jacksonville metropolitan area is located in northeastern Florida. The area has an approximate population of more than 900,000 and close to 70,000 companies, according to the U.S. Census Bureau. This county has a booming economy, which lends a median household income of $50,000, while the cost of living is below the national average.
Jacksonville also has a large residential real estate market with average home prices about 18% lower than the national average. The best part? These houses rent at or above the national average. That means high cap! The economic stability of the area and the abundance of jobs also make this a “safe tenant” investment market, where it is more likely to find reliable tenants.
Being a fairly stable market with little rental turnover, Duval is an attractive county to purchase a safe and profitable investment rental property and one of the counties we recommend to our investors.
Greater Orlando (Orange County)
For several years in a row, Orlando has been among the top and most popular areas to buy an investment rental property. In the last decade, the area has seen an astonishing growth in population and with an ever-expanding tourism industry, more jobs become available each month. This continues to attract people to the area.
In terms of property availability, with a growing economy comes new housing developments and residents move on to newer areas, leaving a plethora of possible houses to buy and rent. The homes’ purchase prices are affordable and below the national average, yet the rental income is higher than the national average, so investors see a positive cashflow. But move quickly! According to DoughRoller, while the average home price in Orlando is around $245,000, it is expected to grow by 9%! DoughRoller also estimates that the home prices will jump 35% by 2023. This is an exciting time to invest!
Another reason why Orlando is a wildly popular market for investors is its proximity to attractions. The number of homes and units located close to the parks is more expensive than the rest of the area, but they open the door for short-term vacation rentals. If you are looking to become an investor who is more actively managing a property and wants to see a higher return on your investment, then this could be a viable option for you.
Greater Atlanta (Gwinnett and Rockdale Counties)
Coming in hot from Georgia is the Greater Atlanta Area. This market is one of the most profitable for investors around the country. While investing in or around downtown Atlanta might seem like an attractive idea, your investment will go a lot further in Gwinnett and Rockdale counties.
Both areas constantly deliver properties that are well below the national average and rent well. These markets are practical for investors as the rental income allows for positive cash flow and a high rental cap rate within a shorter time.
Gwinnett is a large county sprawling over 430 square miles and housing several cities and towns. Clearly, the southwestern corner is the most popular among investors due to its proximity to the Atlanta business district.
The median value of investment-worthy properties is about $140,000, which is around the state average. Homes in Gwinnett usually need less TLC and rent at a higher rate; but with the investment being larger, the rental cap stays at around the average. However, we do see this county on the rise, so investing here might yield better longer-term returns.
Similarly, Rockdale is located just 30 minutes away from downtown Atlanta and offers homes with a median price of $70,000. Some of these homes might be a bit more run down, so they will require some conditioning prior to renting them out. However, the smaller upfront investment keeps the rental cap at a good rate. This might a good area for a newbie investor, who may not have the cash in hand to purchase an investment rental property in other markets, and do not want to take out a conventional or hard money loan.
Miami-Fort Lauderdale (Miami-Dade and Broward Counties)
The magic city makes it onto the list! It’s no surprise that this DMA is included, as the real estate market in Miami-Fort Lauderdale is one of the fastest-growing in the country. More and more companies are relocating to Miami, and it shows in the number of new jobs added last year – 86,000+, to be exact!
The median rent in Miami-Fort Lauderdale is around $1,300, but it fluctuates depending on the location, proximity to attractions, school districts, etc. The median household income is $48,982, according to the U.S. Census Bureau, which is lower than the national average. However, the average fraction of income going to rent in Miami is 29.09%, 3.35% higher than the rest of the state and 8.96% higher than the national average. This makes a world of a difference buying investment rental properties in Miami, as investors keep up with the market trends, and in the last decade it means rent has been going up every year.
Property sale prices in the area can range from the low-to-mid $100,000’s all the way up to the $500,000’s, with an estimated median of $268,200.
This is where investors divert in strategy:
- Do you want to keep the investment low and rent at a steady rate? Buy a property away from the attractions and find long-term tenants.
- Do you want to implement a higher-risk strategy that will cost more, but might yield a higher ROI? Then, you could buy a more expensive property close to the action and list it as a short-term or vacation rental.
Regardless of your investment strategy, Miami has a stable economy with a healthy median income that, when mixed with a trending high-rent market and the consistent high rental cap, make Miami-Fort Lauderdale a dream area for investors.
Tampa Metro Area (Hillsborough County)
In the last few years, Tampa, the beautiful city on the west coast of Florida, has consistently delivered our investors great ROI through investment rental properties. The economy is strong and booming – just in December 2019, alone, there were 1,800 new jobs created in the area (and more than 30,000 new jobs last year!).
As in any metropolitan area anchored by a large city, home prices rise as you get closer to downtown and the Riverwalk. While the median sales price of properties in Tampa is around $220,000, a quality investment rental property (at least, 2 bedrooms) will sell for about $115,000. With an estimated average rent of $1,200, the rental cap is great for investors looking for a stable rental property.
Additionally, if you are looking to make a larger investment, you could find properties closer to the beach in Clearwater and St. Petersburg. These properties rent at a much higher rate than the Tampa suburbs, and some can even be used as short-term or vacation rentals. However, with a larger investment and a revolving door of renters, we recommend investors be cautious about this option.
All in all, Tampa is a stable and profitable market to purchase an investment rental property, and it will just get better in the coming years.
Pasco is a highly residential county just north of Tampa and serves as a “bedroom community” for the greater metropolitan area. While Pasco is technically within the Tampa Metro Area above, it is worth naming this county on its own. Many people who live in Pasco County work in Tampa, due to the lower cost of living there, not to mention that it is only 35-40 minutes away from downtown.
The best investment rental properties in Pasco County are in the New Port Richey vicinity, Pasco’s largest city. According to the U.S. Census Bureau, the city has a population of about 16,000 and a median household income of $34,644. This small and charming city has been attracting people who prefer to save some money on living expenses rather than living close to the center of the action.
New Port Richey boasts a large number of residential units, so you can find many opportunities to scoop up a great property. While the majority of the houses are cheaper than in other cities or counties, the New Port Richey area is still up and coming, so, the median rent is not the highest. While Pasco is within our high rental cap rate area, you must be sure to find a property that doesn’t need much TLC, so you keep your investment as low as possible.
Things to consider when buying an investment property
Regardless of where you choose to invest, you need to also consider many additional factors that will affect the present and future of the property.
- Neighborhood trends: Are many properties rented? Are most of the homes owner-occupied? Are there any schools nearby? How’s the crime?
- Tenant and economic profiles: Are tenants in the city reliable? How’s the job market? How stable is the economy in the city? Is unemployment going up or down? Are new jobs being created year over year?
- Upcoming changes or new developments in the area: Is there a new shopping center being built less than a mile from the property? Are there many companies relocating or opening offices in the vicinity? Will there be a new attraction built close by?
- Competition: Is there a lot of land where new residential developments or rental communities could be built in the future? Is there a large vacancy rate in the area? Are families moving away from the neighborhood?
As you can see, there is no secret recipe for the perfect investment rental property, but with due diligence, you can find the perfect property for your specific investment strategy or existing portfolio.