These 10 Cities Are Red-Hot for Rental Housing

Rental demand over the last two years has been red-hot. Rapid home price growth and lack of housing pushed rental growth up 14.1% year over year, with several markets seeing rental growth at even higher rates.

But the tides seem to be changing. The rate of rental growth is slowing, which could signal that demand is weakening in certain areas. That means it's more important than ever for investors to focus on owning rental property in the right markets to maximize returns and reduce risk.

Here's a closer look at 10 real estate markets that are still red-hot for rental housing.

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A recent report from CoStar Group (NASDAQ:CSGP) shared that rent growth slowed in the second quarter of 2022 for most major metros across the country. Orlando, Florida, however, is booming. Rental growth year over year is 18.7% -- the highest of any city, with the average rental rate being $1,800.

Given the median home price in the area is $383,000, there's a decent opportunity for rental return. Plus, rental demand is consistent, thanks to its colleges and universities, diverse job market, and ties to the entertainment and service industries.

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Miami is one of the hottest housing markets in the United States, but its high cost of homeownership has created a large rental demand. According to CoStar Group, Miami has the third-highest year-over-year rental growth rate, at over 16%.

The caveat here is that it's one of the least affordable cities in the country, so the record rental growth it's experiencing today will likely not last forever. However, for investors looking for value add opportunities, Miami is an ideal market to jump into.

Tampa, Florida, has been on the list of top real estate markets for residential housing and rental real estate for several years, and it seems demand is holding strong. Year-over-year rental growth is at 14.2%. Lack of inventory and an increase in residents are creating the perfect storm for rental demand.

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Hunstville, Alabama, is the most populous city in Alabama, with ample rental demand and job opportunities, thanks to its close ties with the technology, defense, military, and space industries. The population in this city is growing quickly, while the median home price remains well below the national average. Those factors combined make it a fantastic market to own a rental.

Atlanta is one of the hottest rental markets in the country. Fulton County, in particular, is one of the more affordable counties for renters. Rents go for around $1,800, on average, while homes go for around $450,000, creating long-term demand for rental properties.

Higher real estate values do make lower rent rates hard to cash flow, so it may be advantageous to look in the city's suburbs, which often have far more affordable home prices.

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Lake County, the area surrounding Chicago, is seeing rental rates grow faster than home prices. This growth is largely due to the higher cost of real estate in the area, the larger proportion of renters to homeowners, and its diverse job market driving an increasing number of new residents.

Chicago was No. 10 on 2021's top 10 cities for inward migration, something it hasn't accomplished since 2015. Its rental growth isn't as stellar as some other cities on the list, but its steady demand makes it a red-hot rental market, nonetheless.

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Over the last several decades, Charlotte, North Carolina, has made a name for itself as one of the fastest-growing cities in the Southeast. Its abundant job opportunities and relatively affordable cost of living make it an ideal market for owning a rental property.

The spread on a rental property isn't huge, given the median home price is rising quickly while rents remain relatively affordable at around $1,500, but there are definitely deals out there.

Ventura, California, the county sitting just outside Los Angeles, isn't affordable by any means. In fact, its median home price of $890,000 makes earning a solid rental return quite challenging, even with the average rental rate being $2,600. But it is seeing red-hot rental demand.

It's one of the markets in which ATTOM Data Solutions is seeing rents grow faster than home prices, likely due to affordability making renting the only viable option for a growing number of residents.

ALSO READ: Should You Buy a Rental Property Right Now?

Cleveland has been a long-time affordable city for owning or renting real estate, thanks to dwindling demand over the past few decades. But things are making a positive turn in the city, and rental demand is returning in a big way. It's among the fastest-growing rental markets, with home prices remaining well below the national average, leading to higher returns for investors.

Pittsburgh has seen demand for rental housing slowly return over the last decade, after several challenging years of outward migration for the city. The return of new jobs and affordable housing options make it an attractive market in which to own and rent.

According to a recent report by ATTOM Data Solutions, Pittsburgh was the No. 1 market where rents were growing faster than home prices, indicating a lack of rental housing relative to demand.

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Expensive markets often lead to lower rental yields and higher competition. So, while it may seem like the top metro markets are an ideal place to invest, data shows this isn't true. Instead, Sun Belt markets are shining. These 10 markets are still well positioned to profit despite the changes taking place in the marketplace.

Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CoStar Group. The Motley Fool has a disclosure policy.