The 10 Best Places to Buy Rental Property in 2020

By: , Contributor

Published on: Dec 30, 2019 | Updated on: Jan 07, 2020

Here's a look at the top 10 places to buy rental property right now and the factors that go into that determination.

Real estate investors are constantly looking for the best places to buy rental property. Identifying which markets hold the greatest investment opportunity can lead to increased cash flow and a higher return on investment. But not all real estate markets are considered equal.

We'll go over the factors that make a market one of the best before breaking down the 10 best places to buy rental property in 2020, which are:

  1. Amarillo, Texas
  2. Tampa / St. Pete / Clearwater, Florida
  3. Oklahoma City, Oklahoma
  4. Atlanta, Georgia
  5. Cedar Rapids, Iowa
  6. Indianapolis, Indiana
  7. Jacksonville, Florida
  8. North Charleston, South Carolina
  9. Louisville, Kentucky
  10. Dallas / Fort Worth, Texas

What factors make a market the "best place"?

The best places to buy rental properties will have:

  • Affordable housing: Affordability is extremely important when determining a "top" market. The more affordable the housing, the more opportunity for investors, big or small, to invest. Housing cost here is determined by Zillow Home Value Index, which is the median Zestimate home price for the area.
  • Wage growth: Landlords want to invest in areas that are growing. Wage growth is the percentage change in the area's wages or average salary year over year. Wages should grow at the same rate of rental and market appreciation.
  • Unemployment rate: The current national unemployment rate is 3.3%. A top market will have low unemployment rates, at or below the national unemployment level.
  • Population growth: Ideally, a top market will see an increase, not a decrease, in population growth, which is the percent change in the city’s population year-over-year. This means people are moving there for because of opportunity, typically economic or job growth or affordable housing. (source for this data, United States Census population from 2010 to 2018)
  • Increase in property value: Most investors want to invest in areas that appreciate or increase in value over time. The change in home value is the percent change in the city’s median home value year over year.
  • Rental yield: The median home price should be supported by the median rental rate. The higher the median rental rate in relation to the housing cost, the greater the rental yield. The rental yield is determined by the percentage value of rental income compared to the property’s market value.

Real estate markets differ on a micro and macro level. For example, a city or county (macro) can be identified as a high rental investment opportunity, with certain zip codes or neighborhoods (micro) providing better returns or opportunities than others. This list identifies the best real estate markets on a macro level, by city or county. You ultimately have to determine the areas within the city or county that make sense for your investment portfolio.

High returns aren't the only important factor

There are markets beyond this list that provide higher rates of return but had slow wage growth, higher unemployment rates, or declining populations. They are still notable markets to keep an eye on but didn't make the top 10 list:

  • Pittsburgh, Pennsylvania
  • St. Louis, Missouri
  • Lima, Ohio
  • Cleveland, Ohio
  • Birmingham, Alabama
  • Montgomery, Alabama
  • Lima, Ohio
  • Salisbury, Maryland
  • Detroit, Michigan

The 10 best markets were determined by identifying cities or counties that provide an annual rental yield of 9% or more, wage growth of 3% or more, unemployment rate at or below the national average, and population growth of 3% or more.

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10. Dallas / Fort Worth, Texas

2019 Annual Gross Rental Yield: 9.1%

Zillow Median Home Price: $206,558

Change in Home Value Over 1 Year: 4.9%

Median Rental Rate: $1,610

Wage Growth: 3% - 5%

Unemployment Rate: 3.1%

Population Growth: 20.2%

Dallas-Fort Worth, home to over 7.5 million people, has been recently recognized as one of the most dynamic economies in the United States. Its leading industries are construction and mining, professional and business services, and financial sector. Home to one of the largest and busiest international airports in the world and several universities and professional sports teams, it's a fast-paced, growing economy with large population growth and job opportunity. Counties surrounding the greater Dallas metro offer the highest rental returns including Kaufman, Ellis, and Johnson, all with 9% or higher annualized rental returns.

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9. Louisville, Kentucky

2019 Annual Gross Rental Yield: 9.2%

Zillow Median Home Price: $173,641

Change in Home Value Over 1 Year: 4.1%

Median Rental Rate: $1,150

Wage Growth: 8%

Unemployment Rate: 3.2%

Population Growth: 4.2%

Located on the Ohio River, Louisville is best known for being the home of the Kentucky Derby and the bourbon industry, which produces $8.6 billion in annual revenue. Outside of tourism, bourbon, and sporting events, Louisville is a major center for health care and medical sciences, manufacturing, mining, quarrying, oil, and gas.

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8. North Charleston, South Carolina

2019 Annual Gross Rental Yield: 9.6%

Zillow Median Home Price: $183,242

Change in Home Value Over 1 Year: 4.6%

Median Rental Rate: $1,400

Wage Growth: 3% - 5%

Unemployment Rate: 1.8%

Population Growth: 16.1%

North Charleston is part of the Charleston / North Charleston / Summerville metro area. Charleston, the best known of these, is a historic coastal town, making tourism being one of the largest industries for the area. The automotive industry, manufacturing, health care, and scientific and technical services make up most of the remaining many job opportunities. It has an extremely low unemployment rate with strong population growth over the past decade.

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7. Jacksonville, Florida

2019 Annual Gross Rental Yield: 10.1%

Zillow Median Home Price: $190,108

Change in Home Value Over 1 Year: 4.1%

Median Rental Rate: $1,349

Wage Growth: 3%

Unemployment Rate: 2.8%

Population Growth: 10%

Jacksonville, Florida, is currently one of the top 20 economies in the entire United States, with the Port of Jacksonville being the third largest seaport in the U.S. A major hub for the United States Navy with numerous bases, this city is the third-largest military presence in the country. Its varied economy has strong employment opportunities across multiple sectors including health care, social assistance, retail, financial, scientific and technical services, and insurance.

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6. Indianapolis, Indiana

2019 Annual Gross Rental Yield: 10.3%

Zillow Median Home Price: $148,858

Change in Home Value Over 1 Year: 6.6%

Median Rental Rate: $1,075

Wage Growth: 3%

Unemployment Rate: 2.7%

Population Growth: 5.7%

Indianapolis has been long revered for being one of the best places to own rental real estate and has consistently made the top 10 list for residential rentals. It has a diversified economy and job market with growth in the education, health care, and finance sectors. Home to the Indy 500, Brickyard 400, and NCAA Basketball Tournaments, this city is appealing for those looking for a strong job market, vibrant city, and affordable cost of living.

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5. Cedar Rapids, Iowa

2019 Annual Gross Rental Yield: 10.6%

Zillow Median Home Price: $144,243

Change in Home Value Over 1 Year: 2.1%

Median Rental Rate: $995

Wage Growth: 4%

Unemployment Rate: 2.4%

Population Growth: 5.3%

This Midwestern city with just under 300,000 residents is best known for its grain production, food processing, and meatpacking. It produces the greatest amount of ethanol of any city and is the largest corn processing city in the world, home to General Mills and Quaker Oats. Rockwell Collins, an aviation communications company, is the largest employer with over $8.6 billion in annual sales. Low unemployment rates and the affordable cost of living for its residents make it an ideal market for owning rentals.

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4. Atlanta, Georgia

2019 Annual Gross Rental Yield: 10.9%

Zillow Median Home Price: $287,054

Change in Home Value Over 1 Year: 2.3%

Median Rental Rate: $1,800

Wage Growth: 2% - 3%

Unemployment Rate: 2.9%

Population Growth: 16.7%

Atlanta is the fifth largest metro city in the United States, housing the headquarters of Coca-Cola, Home Depot, UPS, Delta Air Lines, and Turner Broadcasting along with the Atlanta Braves, Falcons, and Hawks professional teams. While the median home price is higher than the national average, its unparalleled population growth, strong job market, and low unemployment rate make this a top city to own rental real estate. Counties surrounding the greater Atlanta metro offer the highest rental returns including Bartow, DeKalb, Douglas, and Paulding counties, all with 9% or higher annualized rental returns.

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3. Oklahoma City, Oklahoma

2019 Annual Gross Rental Yield: 11.1%

Zillow Median Home Price: $137.998

Change in Home Value Over 1 Year: 6.4%

Median Rental Rate: $1,025

Wage Growth: 3%

Unemployment Rate: 2.9%

Population Growth: 11.9%

Oklahoma City, often referred to as OKC, is an up and coming city that has experienced tremendous population growth over the past decade, including double-digit growth of millennials. OKC's main economic production is in oil, natural gas, and petroleum resources, but the business industry including scientific, technical, administrative, and management services is growing.

Oklahoma City also has several colleges and universities, including Oklahoma City University, Oklahoma State University, and the University of Oklahoma. It is important to note that nearly 25% of all employment is in the natural resource sector, so if the oil, petroleum, or natural gas industry experiences a downturn it could greatly impact the employment and population of the city.

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2. Tampa / St. Pete / Clearwater, Florida

2019 Annual Gross Rental Yield: 11.4%

Zillow Median Home Price: $193,143

Change in Home Value Over 1 Year: 5.8%

Median Rental Rate: $1,425

Wage Growth: 6%

Unemployment Rate: 3.2% (Pasco county)

Population Growth: 16.1% (Pasco county)

With over 2.8 million residents, the Greater Tampa Bay area has several of the country's fastest-growing cities. It's home to the University of South Florida and the Tampa Bay Buccaneers, Lightning, and Rays professional sports teams. In 2017, greater Tampa Bay produced $146 billion in gross domestic revenues.

Rental rates and home appreciation are growing at rapid rates, and with the consistent 2.7% year-over-year employment growth, it's a great market for rental real estate investors. Pasco and Hernando counties show the highest rental returns for the greater Tampa area with 11% returns or higher.

1. Amarillo, Texas

2019 Annual Gross Rental Yield: 13.3%

Zillow Median Home Price: $133,827

Change in Home Value Over 1 Year: 2.6%

Median Rental Rate: $1,195

Wage Growth: 5%

Unemployment Rate: 2.4%

Population Growth: 4.9%

Amarillo, a smaller city with just under 200,000 people located in the northern panhandle of Texas, was originally a quiet ranching city but has experienced a surge in population and job growth over the past decade. The city is seeing an expansion in multiple job sectors including retail, hospitality, mining, construction, education, and health services. With unemployment rates nearly 1% below the national average and a high median rental rate, this is a great market for receiving an above-average rental return.

In closing

Just because a specific market is considered a "best market" does not mean its best for you. Investing is personal. You may have different financial goals, risk tolerance, management styles, and investment strategies. Conduct your own due diligence on the above markets to see if they are the right markets for you, and continue to educate yourself about the process of owning rentals outside of your local market.

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