It's Good To Be a Landlord in These 5 States

According to recent data from Zillow, the cost of renting a home is rising across the country. Some of the gains can be attributed to the rise in home values over the past couple of years, and some can be the result of the reluctance or inability of people to buy homes.

However, just because rent is rising doesn't necessarily mean it's a good time to buy an investment property. If home prices are rising faster than the cost of rent, it doesn't make good financial sense to buy a home to rent out. For example, rent prices in Florida rose by 6.5% last year, one of the highest rates in the nation. However, home prices rose by 14.2% during the same period, so it has actually become less lucrative to buy a rental property in the state.

Here are the five states that have posted the highest increases in rent relative to the cost to buy a home, meaning that the return on investment (ROI) for rental homes is on the rise.

5. South Carolina
Despite home values rising by 4.2% over the last year, South Carolina's rent prices have risen by more than 7.5%, making it a solid place to buy investment property.

And, South Carolina is an affordable market to get into with a ton of sub-$100,000 homes on the market. The state's housing market is rated just a 2.5 out of 10 by Zillow in terms of overall health, and homes are sitting on the market for an average of 130 days, making it a good time to be a buyer in South Carolina.

wikipedia/ Akhenaton06

4. South Dakota
Even though rent has barely budged in South Dakota, up by just 0.1% over the last year, home values have fallen by 5.6%, meaning you'll pay significantly less for a home that brings in roughly the same amount in rent.

flickr/ Pete Markham

3. Missouri
As far as the states go; Missouri has the second least healthy market in the country, ranked just 0.41 out of 10, mainly due to a high inventory of foreclosed homes and more than 21% of homeowners underwater on their mortgages.

This has created a high demand for rental homes in the state, and the average rent has risen by 4.5% over the past year, despite the fact that homes have declined in value.

Bev Sykes

2. Louisiana
Similarly to Missouri, Louisiana's home values have declined while the cost of rent has risen. The average rental property in Louisiana brings in over 5% more in rental income than it did a year ago. And, if you're not quite ready to buy, you may get another chance at a bargain. According to Zillow's projections, Louisiana's home values are expected to fall a little more over the coming year.

1. Indiana
Indiana has a relatively healthy housing market, with a pretty low supply of foreclosures and a lower-than-average mortgage delinquency rate. Home prices have actually done pretty well in Indiana, with the average house worth 3.5% more than it was a year ago, and more gains are projected for the coming year.

However, Indiana's rental market is on fire, with rent prices up by 9.7% over the past year, the fastest increase in the U.S. Also, Indiana is one of the most affordable markets to invest in, with the average home value in the state $114,000, the lowest on the list.

wikipedia/ Ppntori

This isn't to say you can't be a profitable landlord in other states. These are simply places where rental properties are selling for a "discount" relative to the increased income potential.

There are plenty of factors that determine the profitability of a rental property, such as your taxes and insurance, whether or not you hire a property manager, and how long it takes to find tenants. The bottom line is that as long as you do your homework and get a good deal on a property, there is money to be made everywhere. These states just make it a little easier.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2014, at 5:49 PM, RAYMONDT wrote:

    "Wages have not kept up with Inflation". That mantra means: Forget about owning your own home if you make less than $80K+ /year.

    In the 1960's, Minimum Wage was $1.50/hour; a little over $3,000/year. Even so, a minimum wage worker could easily afford a home, ($20K or so).

    Nowadays that home is worth $400K, or about 20 times more than in the '60s.

    If wages 'kept up with inflation', Minimum Wage would be 20 times $1.50/hour, or about $30/hour. Approximately $60K/year.

    If you want to get a mortgage today, you need to make at least $60K/year, or about $30/hour.

    Good Luck affording the "American Dream". The people who have "Cash in Fist" will easily outbid you.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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