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Hot Buys: The Top Five Markets for Rental Property Purchases

Sep 6, 2017 12:59:31 PM

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While some consumers might question the safety of investing in real estate, purchasing rental property is traditionally a fortuitous opportunity and long-term investment for buyers and property owners. And, for those willing to take the plunge, there are several highly sought-after markets throughout the country that may offer strong and sound real estate investments—either through a traditional home purchase or buying a rental property.

The top five markets to purchase rental properties are based on rent yield data collected by CoreLogic® from 2016 to present day. A rent yield is the rate of return on an investment property. The first step to determine a property’s gross rent yield is to add up the costs associated with the property, such as purchase price, closing fees, taxes and any renovation costs. Second, take the total rent collection from the property annually and divide it by the total cost of the property. Finally, multiply that number by 100 to get the percentage of gross rental yield.

An important indicator when identifying top real estate investment markets is the median rent, which is the midway point of all houses and units rented at market price over a set period, such as monthly, yearly or quarterly.

  1. Philadelphia, PA 

    Referred to as “The Most Underrated City in America” by the Huffington Post, Philadelphia has a wide variety of arts, sports and entertainment options for city residents. Philadelphia was noted as one of the nation’s 12 largest employment metropolitan statistical areas in August 2016 with a 4.3% job growth rate; well above the 2.7% national average. The average home price in Philadelphia is $164,444, the median rent is $1,520, and a rental yield is 11.4%1. For individuals looking for a positive real estate investment, Philadelphia is a great metro area to purchase a rental property.

  2. Detroit, MI 

    Since the downturn of the automotive industry in Detroit, many consider this city a risky venture. The truth is, however, that Detroit may be an earnest area for rental property investments. Home prices in the downtown area are outpacing the rest of the city. In addition, Detroit’s tech market for jobs is the biggest in the Midwest with 99% of Southeastern Michigan technology companies reporting revenue growth in 2016, versus 90% of Silicon Valley tech companies. The average home price in Detroit is $114,798 and the median rent is just under $1,000. A rent yield of 10.9% confirms the area may be a solid real estate investment opportunity1. Looking slightly outside the city of Detroit, Dearborn and Livonia are attractive areas with strong communities that go back centuries, and may offer other real estate investment opportunities.

  3. Tampa, FL

    While many know Tampa as a great vacation spot, it also offers a variety of real estate markets. Many Tampa residents are employed by major financial processing centers headquartered in the region. Additionally, MacDill Air Force Base and the University of South Florida employ a plethora of Tampa residents. The unemployment rate is 3.8%, which is 0.5% lower than the national average. When jobs are plentiful, real estate is at a premium. The average home price in Tampa is $154,672 with an average rent of $1,187 and a rental yield of 11.7%1. Other nearby areas that are also offer real estate investments include Clearwater, with beautiful water views of the Gulf of Mexico and St. Petersburg known as “Tampa’s more arty and youthful sibling.”

  4. Chicago, IL 

    Chicago is a promising city to invest in rental properties for a variety of reasons. The windy city is home to 31 Fortune 500 companies such as J.P. Morgan Chase, United, Boeing and United Airlines. Additionally, Chicago residents earn more per year than the average American, which means they are able spend more on their residential options, making the area a sound rental investment. The average home price in Chicago is $216,934, with a great median rent of $1,878 and a rental yield of 9.5%1. If Chicago is a little too expensive for a real estate investment, Naperville is a promising alternative, with a quality investment option that is home to an active downtown. Arlington Heights is yet a third alternative, and claims one of the oldest and most elaborate park systems in the Chicago area.

  5. Fort Lauderdale, FL 

    Just like Tampa, Fort Lauderdale boasts an unemployment rate lower than the national average. Top employment sectors in the area include professional and business services, construction, leisure and hospitality, as well as trade, transportation and utilities. The average home price is $187,441 with a median rent of $1,579 and a rental yield of 9.4% equates to an impressive area for real estate rental investment opportunities1. Other nearby areas that offer solid real estate investment opportunities include Pompano Beach and Deerfield Beach, which is a "Blue Wave Beach," known as one of the nation's cleanest and most environmentally safe beaches.

While these are just five U.S. markets featured to purchase rental properties within, the overall real estate market is positive and there are plenty of others areas worthy of an investment. Now is the perfect time to take advantage of continued low mortgage rates and to purchase new investments. Remember that real estate is a strong and sound investment that can continuously generate income for the owner over the long term.

Sources: CoreLogic, 2017.

Topics: rental, real estate, real estate investing

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