What investors should look for in a housing market
If you're a real estate investor looking for monthly rental income and a high potential for annual appreciation, it's wise to study the data from multiple sources. Preferably, you'll want to look for areas where rents are steadily increasing.
You also want the local economy to be healthy and stable, where job opportunities are growing. For example, a city where a large industry is moving in will likely experience a demand increase for rental housing. Your rental property should be cash flow positive. And, of course, you want market price appreciation.
Steer clear of cities that don't have the trends you're looking for. A city with high home prices is likely not an area where the monthly rental income will cover the mortgage, insurance, and taxes of owning a buy-and-hold investment property.
Top 10 lists offer some insight into metropolitan areas where real estate investors might consider buying rental properties that provide annual cash flow and potential market appreciation. That is not the only research you'll want to do, but it's a start.
When I'm looking to invest in a real estate market, here are some positive characteristics that I look for:
- The city is on Zillow's Top 10 Housing Markets for 2023
- It's ranked highly in stats that show the best places to find a job
- The city is in a state that has strong economic stability
- It's a top city for growth, employment, and business opportunities
- Rents rose last year and are predicted to increase in 2023
- There's an attractive ratio between the median home price and average monthly rent
While a city doesn't necessarily need to check all of these boxes to make it a good investing market, the more requirements that it meets, the better.
7 best places to invest in real estate in 2023
Based on these criteria, here are the top seven cities for real estate investors to consider in 2023:
1. Orlando, Florida
Orlando ranks #1 on our list of best places to invest in real estate for multiple reasons. First, it's a great place to find a job, thanks in large part to Disney. Employed renters can consistently pay rent. The average home costs just $262,000, and the average rent is $1,820. Rents have increased 34% in the last 12 months. And Orlando takes the #9 spot on Zillow's Top Ten Housing Markets.
2. Austin, Texas
Ranking #10 on Zillow’s Top Ten Housing Markets, Austin is also in the top five best places to find a job. While the price of homes has increased a lot, with the average home costing more than $450,000, a corresponding shortage of affordable housing continues to force rent prices up. Average rent in 2022 is $2,245, up 25.2% in the last 12 months.
3. Nashville, Tennessee
Nashville ranks #6 on Zillow's list of the hottest housing markets. Still, housing is somewhat affordable at a median price of $398,000, and rents are respectable at $1,800 per month. Rents increased last year by 18.3%. Nashville made Zillow’s Top Ten Housing Markets at #10.
4. Atlanta, Georgia
Atlanta has been on my list of the best places to invest in real estate for three years in a row. It takes the #7 spot on Zillow's Top Ten Housing Markets and #9 on the best places to find a job. With a median home price of $350,300, you might be able to buy several properties for the price of one in other cities. This helps avoid the risk of having all your eggs in one basket.
5. Chicago, Illinois
This one makes it on our list of the best places to invest in real estate for two reasons. With an average home price of $261,000 and an average rent of $2,080, the rent multiplier (one month’s rent divided by average home price) is one of the highest at nearly 1%. Rents have increased an average of 15% in the last year, and this is one city where home prices are seemingly unaffected by the crazy rise of home prices across the nation, which means you can likely find a good deal.
6. Las Vegas, Nevada
Las Vegas is a popular destination for not only U.S. migrants, but also for those moving to the United States from overseas. The city ranked #10 on Money.co.uk's list of the best cities to relocate. Las Vegas also has a lot of jobs as it's the gambling headquarters of the U.S. The median home price is still well under $500,000, and rents have increased an average of 26.4% so far in 2022.
7. Columbia, Maryland
This is the first time this city is making my list in large part because the location (about ½ way between DC and Baltimore) offers a huge job market. It ranks #1 on WalletHub's list of the Best Cities to Find a Job. The location calls for high rents, around $2,250. The median home price is $340,000. Rents are increasing at a steady 10% each year.
Other great cities to invest in real estate
Second-tier recommendations are cities that are either on Zillow's Top 10 Housing Markets for 2023 or have attractive qualities on other Top 10 Lists that are worth investigating further.
For example, Jacksonville, Florida, holds the #2 slot on Zillow's Top 10. Additionally, the median home price is very investor-friendly at under $300.000. Average rents top the $1,500/month mark.
- There seems to be a trend of people moving to East Coast sunny locations. Like Orlando and Jacksonville, Tampa, Florida, has seen an influx of new residents pushing home prices higher. With a thriving job market and a scarcity of affordable housing, rents have risen by 24% in 2022.
- Washington, D.C. remains high as one of the most stable economies, in large part because of the abundance of government workers. Economic stability and high employment are a big plus for rental property owners. Homes are expensive, but rents are high and increasing year after year.
- Raleigh, North Carolina, is #3 on Zillow’s 2022 list of Top 10 Housing Markets and has a decent median home price of $400,000. With an average rent of $1,522 and a healthy job market, Raleigh is a place to check out as a rental property investor.
The bottom line
Please note that the analysis — and the conclusions offered in this article — are incomplete. This should not be considered a blanket recommendation of where to buy rental properties.
Relevant data points like the quantity and condition of rental properties available for purchase, for example, are not considered. This data simply gives you a starting point of cities you might think of first when starting your due diligence.
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