Real estate is one of the best asset classes to build real wealth over time. This article will look at the 20 best cities to own investment property in America post-pandemic.
Personally, I believe the housing boom is going to last for years to come. Therefore, I am focused on buying as many rental properties in the best cities as possible. The combination of rising rents and rising capital values is a powerful wealth builder.
When it comes to investing in real estate, you must focus on the following items:
- Employment growth
- Population growth
- Demographic trends
- Interest rates / mortgage rates
- Valuations / cap rates / net rental yields
- Inventory
Why Invest In Lower-Cost Areas OF The Country
With mortgage interest rates collapsing post-pandemic and with demographic trends shifting towards lower cost areas of the country given so much of the country went through a prolonged shelter-in-place, investing in the heartland of America makes a lot of sense.
Cities like San Francisco, where I live, New York City, Seattle, LA, and Washington DC are getting too crowded. Prices are too high and people are getting fed up.
Thanks to technology, there's no reason why employees have to always come to the office anymore. They can work remotely. Further, companies themselves are finding it cost prohibitive to remain in the most expensive cities of the country, despite the talent concentration pool.
With companies and talent shifting to lower cost areas of the country such as Austin, Houston, Salt Lake City, and more, it's my belief investors can take advantage of this pricing arbitrage by buying real estate through real estate crowdfunding sites like:
- Fundrise (for non-accredited investors) – eFunds and eREITs
- CrowdStreet (for accredited and non-accredited investors) – individual commercial real estate deals focused in 18-hour cities
Fundrise and CrowdStreet are the top real estate crowdfunding platforms today.
The 20 Best Cities to Own Investment Property
Here are the 20 best cities to own investment property, ranked in reverse. The increase in home values data point is a LAGGING indicator, so please don't see a huge figure as a positive sign. It simply means you missed out, but that interest is high.
The key data point I like to focus on is the rental yield. The higher it is above the risk-free rate of return (10-year government bond yield), the better. The current risk-free rate of return is roughly 1.2%. It will likely stay below 2% for the next decade.
As a result, investing in real estate in the best cities through real estate crowdfunding is a wise move.
20. Atlanta
- Population growth: 4.0%
- Employment growth: 1.7%
- Increase in home values: 14.1%
- Rental yield: 5.1%
Atlanta has become a boomtown in America’s southeast, home to Turner Broadcasting as well as a burgeoning tech scene. Some say Atlanta could be the next Silicon Valley.
19. Denver
- Population growth: 3.8%
- Employment growth: 2.8%
- Increase in home values: 7.3%
- Rental yield: 5.2%
Denver’s median rent of $2,060, the 11th highest rent in the study. Just note that inventory in Denver has begun to surge higher. In 2021, the average days on market a home in Denver is the lowest at just 5-6 days!
18. Kansas City, Mo.
- Population growth: 2.7%
- Employment growth: 1.5%
- Increase in home values: 11.5%
- Rental yield: 5%
17. Boise, Idaho
- Population growth: 2.6%
- Employment growth: 3.6%
- Increase in home values: 13.3%
- Rental yield: 5.2%
Boise boasts the largest growth in employment year-over-year, as well as healthy population growth. Appreciation in home values is encouraging.
16. Fort Wayne, Ind.
- Population growth: 1.3%
- Employment growth: 1.8%
- Increase in home values: 9%
- Rental yield: 7.64%
Fort Wayne, Indian has a very attractive rental yield. With a median home price of $159,900, property is quite affordable in Fort Wayne. Even with a rent of only $1,018 a month, you’d still pay off your property in a little over 13 years, faster than in most cities.
15. Durham, N.C.
- Population growth: 4.2%
- Employment growth: 1.4%
- Increase in home values: 11.7%
- Rental yield: 5.6%
Durham's 4.2 percent growth in population is one of the highest rates. The other best cities to own investment property in North Carolina are Raleigh and Charlotte.
14. Madison, Wisc.
- Population growth: 3.1%
- Employment growth: 1.1%
- Increase in home values: 9.6%
- Rental yield: 6%
Madison has a solid rental yield, but a relatively low employment growth figure of 1.1%.
13. Austin, Texas
- Population growth: 3.7%
- Employment growth: 3.3%
- Increase in home values: 7.8%
- Rental yield: 5.3%
Austin’s population growth exceeded fellow Texan city San Antonio’s, but Austin ranks slightly lower overall due to weaker home value appreciation and lower rental yield. Austin is definitely one of the leading candidates for becoming the Silicon Valley of the South, if not already. Austin is my top 3 favorite real estate crowdfunding investment market.
12. San Antonio
- Population growth: 3.3%
- Employment growth: 2.2%
- Increase in home values: 8%
- Rental yield: 6.4%
From 2016 to 2018, its population grew at a rate of 3.3 percent, which is better-than-average, as is its year-over-year employment growth. Solid rental yield of 6.4%, and also one of my favorite cities.
11. Las Vegas
- Population growth: 3.3%
- Employment growth: 2.8%
- Increase in home values: 15.9%
- Rental yield: 5.3%
Las Vegas is boom and bust town. Prices went down 50% during the last financial crisis, and inventory is heading up again. Beware. That said, the zero state income is very attractive. Some people from California are moving to Las Vegas.
10. St. Petersburg, Fla.
- Population growth: 3.3%
- Employment growth: 2.3%
- Increase in home values: 14.6%
- Rental yield: 5.6%
Who doesn't love zero state income taxes?
9. Tampa, Fla.
- Population growth: 4.6%
- Employment growth: 2.3%
- Increase in home values: 13%
- Rental yield: 5.1%
Tampa's population grew by more than 4.6 percent over the last two years, and its 2.3 percent employment growth is better-than-average. Another winner for no state income taxes.
8. Charlotte, N.C.
- Population growth: 3.7%
- Employment growth: 2.7%
- Increase in home values: 11.9%
- Rental yield: 5.5%
Charlotte has a solid business environment with health population and employment growth. I think Charlotte and Raleigh are two of the best cities to own investment property today.
7. Phoenix, Arizona
- Population growth: 4%
- Employment growth: 3.1%
- Increase in home values: 9.6%
- Rental yield: 5.4%
Phoenix is lovely during the spring and fall, but brutal during the summer. Phoenix was also hit tremendously hard during the last bust.
6. Seattle, Washington
- Population growth: 5.9%
- Employment growth: 3.3%
- Increase in home values: 11.3%
- Rental yield: 4.1%
Seattle has Amazon, Starbucks, and more. But the Seattle market is super hot post-pandemic. It is one of the best cities to own investment property, but valuations are more expensive.
5. Columbus, Ohio
- Population growth: 2.3%
- Employment growth: 1.2%
- Increase in home values: 9.2%
- Rental yield: 7.9%
Columbus has a juicy high rental yield. Capital appreciation will be slow, but if you want to earn higher passive income, Columbus is the place to be.
4. Colorado Springs, Colorado
- Population growth: 4.1%
- Employment growth: 3%
- Increase in home values: 10.3%
- Rental yield: 5.6%
Colorado Springs is buoyed by big population growth, an impressive 4.1 percent from 2016 to 2018. Lots of people are moving out of busy Denver and to Colorado Springs instead. This bodes well for an enterprising property owner, not to mention the city’s solid year-over-year increase in employment of 3%. However, inventory is also starting to rise.
3. Jacksonville, Fla.
- Population growth: 3.1%
- Employment growth: 3.2%
- Increase in home values: 10.1%
- Rental yield: 6.8%
Another great city with high rental yields with no state income taxes.
2. Orlando, Fla.
- Population growth: 4.8%
- Employment growth: 3.5%
- Increase in home values: 10.7%
- Rental yield: 5.7%
A 4.8% population growth along with 3.5% employment growth is huge. But it is sweltering hot and humid during the summer.
1. Arlington, Texas
- Population growth: 2.2%
- Employment growth: 3.4%
- Increase in home values: 10.3%
- Rental yield: 7.5%
Arlington takes the No. 1 spot in GBR's study of where to buy investment property in the U.S. Over the last two years, the city has sustained healthy population growth of 2.2% with 3.4% employe growth. The rental yield of 7.5% is sweet, along with zero state income taxes as well. The median median home price in Arlington is only $240,000, making it a very affordable city to live.
The 20 best cities to own investment property all have strong demographic trends, good valuations, and higher cap rates.
The Best Of The Best Investment Property Cities
If I had to choose the top five cities out of the list, I'd go with:
- Arlington, Texas
- Columbus, Ohio
- Charlotte, North Carolina
- Austin, Texas
- San Antonio, Texas
Again, I'm focused on lower valuations and higher rental yield properties. It's clear that expensive coastal city real estate markets have begun to soften. Please stay away from these markets and focus on my BURL strategy: Buy Utility, Rent Luxury. It's all about arbitraging value in the real estate markets across the country.
The best way to invest in the heartland is with real estate crowdfunding. With real estate crowdfunding, you don’t need to risk $100,000 or more to invest in commercial real estate. Instead, you can invest for much lower amounts such as $5,000.
For more perspective, here are my proprietary best cities to buy real estate based on demographic trends and taxes. I did a top down analysis of the best states first, followed by the best cities in the best states to buy real estate.
Best Real Estate Crowdfunding Platforms
It's important to focus on the best real estate crowdfunding platforms with the most experience, most capital, and the best vetting mechanism.
1) CrowdStreet is based in Portland and connects accredited investors with a broad range of debt and equity commercial real estate investments. CrowdStreet is great because they focus primarily on 18-hour cities (secondary cities) with lower valuations, higher net rental yields, and potentially higher growth. Crowdstreet allows investors to invest directly with the sponsor.
2) Fundrise, founded in 2012 and available for accredited investors and non-accredited investors. I’ve worked with Fundrise since the beginning, and they’ve consistently impressed me with their innovation. They are pioneers of the eREIT product. Most recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.
Both of these platforms are the oldest and largest real estate crowdfunding platforms today. They have the best marketplaces and the strongest underwriting of deals. If you want to invest in the best cities in America, I'd scan the listings on CrowdStreet.
I've personally got $810,000 invested across 18 different commercial real estate projects around the country. My current internal rate of return is about 13% since 2016. Best of all, the income is all 100% passive.
About the Author:
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has $810,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom. The best cities to own investment property is a FS original post.