Where rental investors can find good ROI — and less red tape
The top cities for investors are largely located in Florida and Texas, where home prices are typically lower, demand is strong and regulations favor landlords.
First-time buyers may be struggling with high home prices and elevated borrowing costs, but first-time investors could have better luck — if they choose the right city.
The recently released Real Estate Investment Index ranked the areas with the best investment potential for those just starting out, based on an analysis of market and regulatory factors in the 100 largest U.S. cities.
The winners? Florida and Texas metros, with Rust Belt cities making a good showing as well.
Where income potential meets landlord-friendliness: A mix of financial and legal considerations determined each city's ranking. Monetary factors carried the most weight and included average rent prices, median sale prices, gross rental yield — the total rent collected annually compared to the property's purchase price — and renter demand.
"Landlord-friendliness," determined by average eviction time, security deposit limits and rent control laws, also affected the rank.
The Sun Belt rules: Among the top 20 cities most accessible to first-time investors, Florida and Texas each accounted for seven, with the Sunshine State claiming the top two spots. Port St. Lucie came in at No. 1, followed by Cape Coral. Both cities have rising populations, providing steady demand, and the state offers some of the nation's lowest property taxes as well as ample inventory. Median home prices in the two metros fall in the mid-$300,000 range.
Other Florida cities in the top 20: Miami, Jacksonville, St. Petersburg, Tampa and Orlando.
Garland, Texas, where median home prices are just shy of $300,000, ranked fourth. Five of the other Texas cities that made the top 20 — Fort Worth, Irving, El Paso, Corpus Christie and San Antonio — also had home prices below the national median, while Frisco rounded out the list despite a median home price above $600,000.
Rust Belt rising: Also ranking highly were cities spanning several Rust Belt states, including two in Ohio: Cleveland at No. 4 and Columbus at No. 8. Detroit, Indianapolis and Philadelphia were also considered good bets for investors.
Largely missing from the list were cities in the Northeast or along the West Coast, areas that tend to have more high-cost metros.
A good time to buy? Recent data found that the number of homeowner households has fallen for the first time in nearly a decade, while the number of renter households increased, suggesting steady demand for rental properties. And, despite affordability challenges and other economic headwinds, investor sentiment is up and investment activity remains strong, according to a Cotality report.
That's an indication that investors are showing "resilience in a high-price, high-rate environment," Cotality Principal Economist Thom Malone said in the report. "As these adverse conditions are expected to persist, investors are well positioned to meet rental demand," he added.