The 10 Best Rental Real Estate Markets

If you’re considering buying a rental property, familiarizing yourself with the best rental markets in the country could go a long way in preparing you to invest in your first buy-and-hold asset. Aside from being some of the best cities to invest in real estate, today’s best places to buy rental property can teach us a lot about how to invest in specific locations. The location you choose to invest in will ultimately determine the viability and success of any assets you acquire. After all, those who know how to read and interpret market indicators will know where the best rental markets reside. Keep reading to learn where the best places to invest in real estate long term are, and why investors should be excited.

On the FortuneBuilders Real Estate Investing Show, Paul Shively talks with JWB founder Gregg Cohen about the 5 main profit centers that come along with owning Rental investment properties. Tune in to hear the best time to buy rental investment properties as well! Listen to the podcast here:

Best Rental Markets In 2023

Rent growth in 2022 was attributed to supply and demand constraints in the housing sector. Historically low interest rates, pent-up demand, and years of government stimuli created a competitive market—the likes of which had never been seen before. At the same time, inventory was unable to keep up with the pace of buying activity; there simply weren’t enough homes to keep up with demand. As a result, even those who wanted to buy were relegated to the renter pool in 2022, causing rents to spike. In response to higher home prices and rental rates, many households used the work-from-home trends created by the pandemic to relocate to the Sunbelt.

As we get closer to turning the page on 2022, however, the best rental markets are starting to shift to the Midwest. Over the latter part of 2022, the Midwest has seen some of the fastest rental rate growth in the country, and 2023 doesn’t appear as if it will put an end to the momentum. The convergence of record rent increases and inflation is forcing more people to move back in with families or roommates, or even delay renting altogether.

The shift in sentiment has also changed the best places to buy a rental property in 2023. Instead of focusing on the Midwest, as investors have done throughout 2022, the best rental markets in 2023 are looking more and more like the following:

• Chicago, Illinois

• Cincinnati, Ohio

• Columbus, Ohio

• Grand Rapids, Michigan

• Louisville, Kentucky

• New York, New York

• Phoenix, Arizona

• Spokane, Washington

• Raleigh, North Carolina

• San Diego, California

Chicago, Illinois

The Chicago real estate market looks well positioned to be one of the best rental markets in 2023. If for no other reason, Chicago represents the third-largest metropolitan area in the United States. With more than 50.0% of the city’s population already locked into a rental agreement, buying a rental property in Chicago is just as much of a volume play as it is a smart decision. The number of potential renters in a city with relatively high private sector employment bodes well for investors looking to fill units. Additionally, Chicago could see its number of renters grow over the course of 2023. With a mere 16.8 weeks of supply in the housing sector, there aren’t nearly enough homes to keep up with buyers. Those who can’t buy will be forced to rent and drive up demand in a city that already has peak competition. Rents have already risen about 7.3% over the last 12 months. If interest rates continue to spike and home affordability continues to crumble, there’s no reason to think rents won’t march even higher in 2023.

Cincinnati, Ohio

Owning a rental property in the Cincinnati real estate market is growing more attractive with each passing day. With local rents growing about 6.0% in the last six months alone, Cincinnati has one of the fastest metro-level rent growth rates in the country. The rise in rental rates appears to be attributed to the city’s relative affordability. With that in mind, more people are looking to Cincinnati in an attempt to escape today’s high prices. With a median sales price somewhere in the neighborhood of $230,000, Cincinnati real estate is more affordable than the national average and, therefore, one of the last bastions of affordable housing. The added action, however, is straining the city’s 11.4 weeks of supply. Not unlike just about everywhere else, there aren’t enough homes to satiate buyers. As a result, local rents are expected to increase significantly as buyers are turned away from purchasing and towards renting.

Columbus, Ohio

One of the best places to buy a rental property in 2023 is shaping up to be the Columbus real estate market in Ohio. Similar to Cincinnati, Columbus has seen a lot of extra attention over the course of 2022. At $246,515, the median home value in Columbus is well below the national average. Due to the city’s relative affordability, more people are looking to call it home. However, Columbus only has about 13.1 weeks of inventory; not nearly enough to keep up with demand. The imbalance between competition and inventory has created more demand for rentals, increasing rents as much as 6.0% over the last six months. Looking into 2023, demand for real estate in Columbus will increase as more people look to escape less affordable markets. When supply fails to keep up with demand, more renters will enable landlords to increase rental rates, making Columbus one of the best rental markets in 2023.

Grand Rapids, Michigan

While rents in the Grand Rapids real estate market haven’t increased at quite the same pace as the previously mentioned cities, 2023 is starting to look like a great year for passive income investors. For starters, landlords will see plenty of demand thanks to the city’s distinct lack of inventory. With 7.0 weeks of supply, inventory is nowhere near capable of keeping up with demand. Subsequently, Grand Rapids is expected to see a steady influx of net migration due to the city’s relative affordability. More households will be forced to rent, regardless of whether they can afford to buy. Discrepancies in supply and demand have already resulted in a 5.4% increase in rents over the last year, and there’s nothing to suggest the trend won’t continue. As a result, investors will see plenty of demand for their rental units, giving them the ability to increase asking prices accordingly.

Louisville, Kentucky

While not technically part of the Midwest, the Louisville real estate market is benefiting from the same migration trends as the rest of the best rental markets on this list. Most notably, renters are choosing to call Louisville home because it represents a more affordable real estate market. The median home value in Kentucky is about $125,000 less than the national average, serving as an affordable alternative for anyone who was granted work-from-home privileges over the course of the pandemic. The added attention on the Louisville market will pose a significant challenge for local inventory levels. With a little more than two months of inventory, demand greatly outweighs supply. The lack of inventory has already increased rents by 8.1% over the last 12 months. Therefore, it’s reasonable to assume that more people moving to Louisville in search of affordable living situations will ironically increase rental rates.

New York, New York

Few cities across the country have proven to be a better market to be a landlord in than New York. In the last six months, metro-level rent growth increased upwards of 5.0%, trailing behind only Columbus and Cincinnati. However, unlike its Ohio counterparts, New York hasn’t seen an influx of demand because of affordability. Instead, the New York real estate market is finally starting to get its legs underneath it. With what looks like the worst of the pandemic in the rearview mirror, New York is starting to fire on all cylinders. People are going back to the office, and landlords are seeing more demand for their units. New York landlords have already been able to increase rents at an attractive rate, and current trends suggest they will continue to be able to do so—at least for the foreseeable future.

Phoenix, Arizona

Only a handful of metropolitan areas have seen their rents increase as much as the Phoenix real estate market over the last three years. Since the beginning of the pandemic, in fact, rents in Phoenix have increased by about 32.0%. Only seven other cities with a population greater than one million saw rents increase at a faster rate than Phoenix since the first quarter of 2020. The increase was directly correlated to the market’s relative affordability and households’ inclination towards warmer weather during the pandemic. Rent increases have cooled off in recent months, but Phoenix remains a destination for both older generations on the brink of retirement and up-and-coming tech industry employees. Demand from several generations of buyers and renters will make Phoenix one of the best rental markets in 2023.

Spokane, Washington

While separated by an entire state, the Spokane real estate market is benefiting from its more expensive neighbors to the West: Seattle and Portland. Both Portland and Seattle have seen exorbitantly expensive home values lead to a mass exodus. In search of more affordable living arrangements, many households have set their sights on Spokane. With a population that barely eclipses 200,000 people, Spokane is a relatively small city receiving a lot of attention. Demand for housing has already increased home values 12.6% over the last year. Additionally, Spokane’s 11.9 week of supply can’t keep up with the net migration. As a result, the rental market has become the beneficiary of an influx of demand. Spokane real estate investors with units for rent will most likely be able to avoid vacancies with ease and increase rental rates in 2023, making it one of the best rental markets to invest in.

Raleigh, North Carolina

The Raleigh real estate market was a beneficiary of the new migration patterns created by the pandemic. Local home values have increased about 56.3% since COVID-19 was officially declared a global emergency. In that time, rents have increased a slightly more modest (but nonetheless impressive) 32.9%. As more people chose to call Raleigh home, landlords and sellers were able to increase their prices at a historic pace. That said, residents haven’t chosen to flee Raleigh as prices rise. If anything, more people are looking to call Raleigh home in 2023, which suggests it may be one of the best rental markets in 2023.

San Diego, California

Many of the hottest real estate markets in 2022 were located in the Sun Belt. As more people were granted permission to work from home during the pandemic, many households chose to relocate to warmer locations. The San Diego real estate market, in particular, saw an incredible influx of demand when buyers and renters prioritized cities with warmer weather. The resulting demand increased rents and home values almost exponentially over the last three years. Landlords have been able to increase rents as much as 5.0% in the last six months alone. That said, higher home values and rents haven’t scared away potential buyers and renters; if anything, demand remains largely intact. As a result, local landlords will find that they can simultaneously lower the risk of vacancies and increase rents in 2023.

Best Rental Markets In 2022

The best places to buy rental property are the direct result of new indicators created by the pandemic. At the very least, the impact of COVID-19 on the real estate market has altered the housing sector landscape. Most notably, work-from-home trends have enabled more people to trade their existing living situations for something more desirable, many of which are listed below. As prices increase in today’s most popular cities, in fact, more people sought out more affordable options in areas less prone to COVID-19 breakouts. The ability to seek out new living arrangements helped shape the best places to invest in real estate in 2021, and the same trends appear to be continuing into 2022. As a result, it’s starting to look like these are the best places to invest in real estate in 2022:

• Boise, Idaho

• Tampa Bay, Florida

• Seattle, Washington

• Salt Lake City, Utah

• Providence, Rhode Island

• Dallas, Texas

• Orlando, Florida

• Austin, Texas

• Atlanta, Georgia

Boise, Idaho

The Boise real estate market played host to one of the best rental real estate markets in 2021, and there’s nothing to suggest the trend won’t continue. For starters, Boise continues to attract more people looking to leave the expensive confines of small metropolitan apartments in primary cities. As more and more people are permitted to “work from home,” Boise will see an influx in its population. If for nothing else, Boise offers more affordable living arrangements and more outdoor activities at a time when the pandemic continues to drive more people outside. The added attention has increased home values and rental rates significantly, but the demand isn’t expected to end soon. Boise will continue to attract more people because of its affordability and “outdoor lifestyle,” and landlords will benefit immensely. Sales and prices are expected to increase while inventory remains tight. As a result, more people will be forced to rent in Boise—even if they can afford to buy. The added demand will allow rental property investors to increase their prices accordingly, firmly cementing Boise as one of the best cities to invest in real estate.

Tampa Bay, Florida

Not unlike Boise, Tampa Bay was one of the best rental markets last year, so it shouldn’t surprise anyone that it made the list again. The momentum Tampa Bay was able to build last year appears ready and willing to carry over into 2022. However, the real reason Tampa Bay looks to remain one of the best rental real estate markets in 2022 is because of available inventory. Some of the latest numbers released by Florida Realtors suggest active listings are down 19.9%, leaving Tampa with a mere 1.6 months of inventory. The distinct lack of listings means that even buyers with enough money can’t find a home to buy. Therefore, those who aren’t able to buy will be forced to rent. With so few homes for sale, landlords in Tampa will most likely see a surge in interest and be able to increase their rental rates more than in years past.

Seattle, Washington

The Seattle housing market has been one of the best rental markets over the last two years. Increasing job opportunities in the technology sector have resulted in massive population increases and subsequent housing activity. Growing demand has quickly turned into competition, as more and more people are looking to take advantage of historically low borrowing costs. However, much like everywhere else, Seattle doesn’t have enough homes on the market. Heading into 2022, the Seattle real estate market will have somewhere in the neighborhood of 2.8 weeks of supply. A healthy, balanced market will usually boast about six months of inventory, which leaves real estate in Seattle well below where it wants to be. Demand, in association with a distinct lack of inventory, has driven prices up about 11.2% over the last 12 months, and appreciation will continue into 2022. Growing home values will price a lot of buyers out of the market, but many more will be forced to rent because there aren’ enough homes to buy. As a result, local indicators are leaning heavily in favor of landlords. Not only will vacancies become less of a threat because of increased demand, but landlords will easily be able to increase rental prices and monthly cash flow from properties placed in operation.

Salt Lake City, Utah

Few markets across the country had the type of year the Salt Lake City housing market had in 2021. Increasing demand, lower borrowing costs, and just under two months of inventory have led to some of the country’s fastest appreciation rates. In as little as one year’s time, the median home value in Salt Lake City has increased as much as 24.1%. In that time, rental rates have also increased by approximately 20.7%. Increases in rental rates and home prices result from new indicators created by the pandemic, but the slight disparity suggests rates have room to increase. Home values have increased because of supply and demand constraints, but the longer Salt Lake City goes without adding more inventory, the more we can expect rental rates to increase. With so few homes available to buy and demand increasing each month, more and more people will be relegated to the renter pool. It is reasonable to assume rental rate increases will make up ground on their home value counterparts over the course of 2022, and local landlords will surely find Salt Lake City to be one of the best rental markets in the country.

Providence, Rhode Island

At $1,341, the median rent in Providence is now 20.9% higher than it was just one year ago. However, it is worth noting that rental rate increases have outpaced home values. In the last year, the median home value in Providence has increased a slightly more modest 18.5%. The difference is most likely due to the city’s 19.83 price-to-rent ratio. At 19.83, it’s more affordable to rent a home in the Providence real estate market than to buy one. Local affordability has driven more people to the rental market at a time when there’s not enough units to rent. In other words, supply hasn’t been able to keep up with demand, and landlords have been able to increase their rental rates faster than homeowners have been able to increase their listing prices. The unique circumstance may create the perfect storm for local investors. With home values increasing at a slower rate than rents, 2022 may be the perfect time to buy a home in one of the country’s best rental markets.

Dallas, Texas

The Dallas market has two key features that make it a great opportunity for buy-and-hold investors: housing availability and high rental rates. According to Apartment List, the average monthly rent for a one-bedroom apartment is roughly $1,678. Generally speaking, renting in the city is more affordable than buying — making rental demand high across the city for all income levels. In the last year alone, rental demand has increased by 14 percent. The market is expected to keep growing in the coming years as new jobs open in a variety of sectors. Investors interested in this Texas market will want to act soon, as some estimates predict the population will double over the next 15 years.

Orlando, Florida

Orlando has remained one of the best places to buy rental property yet again. This Florida market is performing well in terms of short and long-term rental demand. Investors able to score a property near one of the many attractions Orlando has to offer, such as Disney World, may find their property booked almost year-round. Aside from the tourist spots, Orlando has a growing economy drawing in many young professionals. The top industries in the area include manufacturing, biotech, and defense. The average home price is currently around $365,000, with an average median rent of around $1,800.

Austin, Texas

Texas is another state with quite a few contenders on the best places to buy a rental property. As Austin continues to grow its tech industry, professionals from around the country continue to flock to the area. Aside from tech companies, Austin has bustling industries around E-commerce, healthcare and numerous corporate headquarters. The average home price is around $640,000, with an average median rent around $1,735. These rates are showing consistent increases year over year — meaning investors interested in the area may want to take a closer look soon. Not only is Austin expected to keep growing at the current rate, the real estate market is not expected to slow down any time soon.

Atlanta Georgia

Atlanta is another great option in the Southern United States. Like many cities on this list, Atlanta’s population and job growth rates continue to climb. This city remains to be one of the best places to buy rental property for that reason. The average home price is around $412,000 and the average median rent is hovering around $1,800. Key industries in the area include finance, healthcare, manufacturing, and, notably, film and television. Investors able to break into this market may have no trouble renting a property — if they’re able to stand out, that is.

Top Factors That Affect A Rental Property Investment

There are countless factors that play into a location’s rental viability. The sheer number of variables that have even the slightest impact on an area’s rental property performance is staggering. That said, not all indicators are created equal; there are some factors that affect a rental property investment inherently more than others, not the least of which include:

• Location
• Economy
• Vacancies & Listings
• Future Development

Location

First and foremost, the golden rule of real estate investing is still alive and well: location, location, location. Investing in a rental property with at least some success is always contingent on the area in which it is located. The location of the respective property will determine everything else I’ll discuss henceforth.

Before considering a subject property, you need to pick a location that facilitates a healthy rental market. Specifically, pay special consideration to the economy’s health, demand, job opportunities, new home construction, unemployment rates, household income, affordability, and anything else that could potentially influence a renter’s decision to live in the area. Even the best rental property in a poor location doesn’t stand a chance when all is said and done. You need to invest in an area that people want to call home and where demand will persist for the foreseeable future.

Economy

The local economy will play an integral role in determining the best places to buy rental property. Here’s a list of some of the most important economic factors you’ll need to consider when looking at the location in which a rental property is situated:

• The number of sales of existing homes
• The prices of existing homes
• The volume of new construction
• The local economy
• Population trends
• Unemployment rates
• Job growth
• Median household incomes
• Affordability

While this list is not exhaustive, each of these indicators will play an essential part in determining whether or not an area is worth investing in. Positive trends in each would likely suggest the location is ready to be invested in, but economic indicators are not mutually exclusive. Darren Nix, Founder of Steadily Landlord Insurance, adds that “investors should watch for new home costs. When the costs start to decrease, there will be less demand for existing homes and rentals”. While it’s better to have everything working in an area’s favor, a rental market can thrive with just a few of these factors on its side.

Vacancies & Listings

Mind due diligence and pay close attention to the ratio of vacancies relative to the number of listings in a particular area. An unusually high number of listings, for example, could represent one of two scenarios: either the neighborhood is currently in the middle of a seasonal cycle, or it is trending downwards. It is in your best interest to discern what the listing ratio in a particular area means for an impending investment.

Take note of the area’s vacancy rate, too. At the very least, vacancy rates will give you an idea of what sort of demand to expect. Low vacancy rates could be a good sign, as demand appears intact and active. High vacancy rates, however, could suggest poor conditions. Additionally, lower demand could force landlords to lower rates to attract tenants, not unlike yourself.

Future Development

Areas with future development projects in the pipeline are typically representative of a healthy market. Most likely, projects have broken ground because the area has shown promise, which bodes well for rental property investors. Conversely, a distinct lack of development suggests there is reason to avoid the area. Therefore, you’ll want to contact the local municipal planning department to gather information on all the new projects currently underway or will be sometime soon.

Summary

Finding the best places to buy rental property, or at the very least the best market near you, is essential whether you are purchasing your first or your fourth buy and hold property. Luckily, several indicators can help you choose an optimal location. These factors range from local economic markers to average vacancy rates and population trends. A great place to start is always looking at the year’s best rental markets. Although, these cities are just the beginning. Pay attention to the factors defining these emerging real estate markets and allow them to guide your search for the best location for your investment.

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Sources

https://www.redfin.com/news/data-center/
https://www.apartmentlist.com/research/category/data-rent-estimates