Best Place to Buy Rental Property

Rental properties can be a great source of income and increase overall equity. However, the success of your rental property will vary based on its location. Different cities will have various levels of demand for rental properties and location-specific home value trends. 

If you’re looking to purchase a potential rental property, you’ll want to set yourself up for success by choosing a property in an in-demand area. Before purchasing a property, explore the best place to buy a rental property.

7 Best Places to Buy Rental Property

The best places to buy rental property can change as population trends change. These seven cities are the current best places to buy investment properties.

Birmingham, Alabama

Properties in Birmingham, AL, are affordable investments with a median sale price of $95,000. The listing price has been rising, up 25% year over year. Birmingham's population has been rising, projected to grow by 76,000 by 2024. The current average rental rate is about $1,280, up 4% from the prior year. 

Birmingham continues to be one of the most populated cities in the country, with affordable property prices, a rising population, and rising rental prices. Over the past few years, the booming job market has led to steady rental demand.

• Population: 1.1 million.
• Median home sold price: $95,000
• Gross rental yield: 13.07% in the city center and 10.98% outside the city center.
• Housing price index 5-year growth: 51.54
• Vacancy rate: 6.4%

Charlotte, North Carolina

Charlotte, North Carolina, has a booming job market and is a major metropolitan area. Its lower-than-average rental prices have caused a huge spike in renters. Plus, it’s a hub of art and culture, attracting residents for years. Residents are looking for various rentals, from apartment complexes to single-family homes. 

Additionally, housing prices are up 5.5% from last year and are projected to continue rising. The median rent is about $1,000 per month, so landlords can make passive income from monthly rent and potentially gain from rising home prices. 

• Population: 2.7 million
• Median home sold price: $525,500
• Gross rental yield: 10.6% in the city center and 12.84% outside the city center.
• Housing price index 5-year growth: 74.11
• Vacancy rate: 5.2%

Cincinnati, Ohio

The Cincinnati real estate market has historically produced steady growth, without the standard dramatic fluctuations in value. It's a growing city with low unemployment rates and affordable home prices. Plus, about 60% of its population is renting rather than owning homes leading to a large demand for quality rentals. Its median monthly rent is about $1,100 and the median sale price is up 6.5% year-over-year.

• Population: 1.7 million
• Median home sold price: $270,500
• Gross rental yield: 8.55% in the city center and 7.18% outside the city center.
• Housing price index 5-year growth: 59.32
• Vacancy rate: 3.6%

Dallas, Texas

Dallas, Texas is one of the country’s fastest-growing cities with a rich culture, ample job opportunities, and a high quality of life. It is home to several Fortune 500 companies and an economy full of diverse industries, leading to strong job growth. Home prices in Dallas dropped almost 4.8% year-over-year. But the median home sold price is up 20%, showing potential future growth. Demand for rentals is beginning to rise, and with an average rent of $2,000, landlords may be able to take advantage of low property prices to generate income and equity growth. 

• Population: 6.6 million
• Median home sold price: $499,900
• Gross rental yield: 11.16% in the city center and 15.15% outside the city center.
• Housing price index 5-year growth: 58.01
• Vacancy rate: 8.1%

Jacksonville, Florida

Jacksonville’s low home price paired with high rent prices makes the city very attractive for many landlords looking to purchase rental properties. Since the 1980s, Jacksonville’s home values have been rising about 4.6% on average yearly. This steady growth indicates that home prices will continue to increase. Plus, the population has been increasing by about 1% every year, which could lead to higher rental demands. About 44% of the population rents, with a median rent of $1,819 per month.

• Population: 990,931
• Median home sold price: $319,000
• Gross rental yield: 7.15% in the city center and 11.39% outside the city center.
• Housing price index 5-year growth: 70.70
• Vacancy rate: 6.6%

San Diego, California

San Diego has been a desirable place to live for years, and there is no sign of that changing any time soon. Between warm weather, ample recreation and culture, and a heavy presence of major industries such as military, bioengineering, and technology, San Diego has much to offer its growing population. The median home sold price is a bit steeper than many other cities on this list, but its steady home value appreciation can offer investors a good opportunity for growth. An average rent of $2,300 also provides good potential for a steady income. All in all, it’s a stable market with strong growth potential.

• Population: 1.3 million
• Median home sold price: $980,000
• Gross rental yield: 7.13% in the city center and 7.81% outside the city center.
• Housing price index 5-year growth: 60.16
• Vacancy rate: 3.8%

Savannah, Georgia

Savannah, GA, is a beautiful city with a deep history and a growing population. Its booming economy stems from its seaport, tourism, and growing technology industry. The median rent is about $2,250, but low property prices can yield a good return on investment.

• Population: 148,000
• Median home sold price: $322,667
• Gross rental yield: 11.34% in the city center and 11.88% outside the city center.
• Housing price index 5-year growth: 82.12
• Vacancy rate: 7.1%

How to Choose

Before choosing the best place to buy a rental property, there are several factors you need to consider. Low property prices and high rents aren’t the only indicators of potential success for your real estate investment. You’ll also need to consider several other trends to determine the future of the rental market, including:

• Population Growth: If the population is growing, then the demand for housing may also increase. This can lead to less vacancy and higher rents and home prices.
• Gross Rental Yield: The gross rental yield shows the rent collected from the property over the property value or purchasing price. This shows the potential profit properties in the area can produce.
• Vacancy Rate: The vacancy rate is the number of properties without tenants. A higher vacancy rate can indicate more supply than demand for rental properties.
• Housing Price Index 5-Year Growth: This data set shows the average change in the price of homes over the past five years.
• Median Home Sold Price: This shows what the average home is selling for. It might be helpful to compare it to the average listing price and see if the home sold price has changed. This can indicate how much you might spend on a property.

Expand Your Rental Portfolio

Whether you're purchasing your first rental property or looking to add property to your portfolio, choosing the right location is essential. The real estate market varies from city to city, so you’ll want to check location-specific data before making a purchase. You’ll also need to consider your own goals and budget to determine where it is feasible to buy a property based on home-sold prices and average rents. Contact local real estate agents for even more detailed insight into the current market and to look at potential properties that may work for you.

Frequently Asked Questions