The Top 10 Long-Term Real Estate Markets to Invest In

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Have you been thinking about investing in real estate? Traditionally, real estate has been seen as an effective hedge against inflation; when the price of goods and services go up, so do property values. However, with everything from fix and flips to turnkey properties and Airbnb rentals, you may be wondering what type of real estate would be the best investment. Although the answer may differ based on who you ask, most would agree long-term rental properties (also called buy and holds) are one of the most lucrative assets.

Long-term rentals allow landlords to earn passive income or cash flow from their properties, benefits from certain tax breaks, and build equity while paying down mortgages. With inflation rising in the U.S., a long-term rental property may be an ideal way for you to invest your money. Then the next question is, “where?”

To help you narrow down your options, here’s a look at the results of a study conducted by SmartAsset examining some of the best places to currently buy and own a long-term rental. The study focused on data from 120 U.S. cities with a population of 200,000 or more to gauge factors like home investment favorability (which includes price-to-rent ratio, four-year change in median home value, and estimated annual cash flow), home affordability, and the health of the local rental market.

The Top 10 Cities to Purchase Long-Term Rental Properties

Generally, rental markets in Florida tend to be the most lucrative, with five cities earning a rank among the top 20 rental markets. All five cities (Port St. Lucie, Tampa, St. Petersburg, Jacksonville, and Orlando) also ranked within the top 25 (out of 120 total) for home investment favorability. Cities in Texas and Arizona were also found to be very favorable for real estate investors.

  1. Port St. Lucie, Florida
  • The best place overall to buy and own a rental property in the U.S.
  • Ranked 1st for home investment favorability
  • The average rental property investor has an estimated annual cash flow of $6,096 (the 4th-highest cash flow in the study)
  • Home values have increased by more than 54% between 2015 and 2019 (the 5th-largest increase in the study)
  1. Buffalo, New York
  • Has the 4th highest home investment favorability score
  • Median home values increased 55% between 2015 and 2019 (the 4th-largest increase in the study)
  • The 8th best price-to-rent ratio
  • Median housing costs (mortgages, taxes, utilities) are 13.17% of the median national income (the 3rd-lowest out of all the cities in the study)
  1. Mesa, Arizona
  • The population grew 5.46% faster than the growth of its available housing between 2015 and 2019 (the 6th-largest difference in the study)
  • Median rents increased by 26.46% from 2015 to 2019 (the 17th-largest increase out of 120 cities)
  • An estimated annual cash flow of $2,880
  1. Tampa, Florida
  • The 10th best home investment favorability score
  • The 5th best rental opportunities score
  • Median rents increased by over 23% between 2015 and 2019
  • Low unemployment as of May 2021 (4.6%)
  • Median home value of $265,700 in 2019 (59th out of 120 cities)
  1. Birmingham, Alabama
  • The highest home affordability score out of all the cities in the study
  • The 5th lowest median home value in 2019 ($98,800)
  • Median housing costs were 14.39% lower than the median national household income (5th-lowest in the study)
  1. Detroit, Michigan
  • Lowest median home values out of 120 cities ($58,900)
  • Best price-to-rent ratio (5.67)
  • Housing costs are 9.90% of the median national household income (the lowest in the study)
  • An estimated annual cash flow of $5,616 (the 7th-highest cash flow in the study)
  1. Glendale, Arizona
  • Ranks 9th place for overall home affordability
  • A low average effective property rate of 0.56% (the 15th-lowest in the study)
  • Median home values of $241,100 in 2019
  • An estimated annual cash flow of $2,712
  1. Huntsville, Alabama
  • Median home values of $185,200 in 2019 (34th-lowest in the study)
  • Average effective property tax rate of 0.54% (11th overall)
  • The population growth outpaced housing unit growth by nearly 5% between 2015 and 2019 (the 9th-highest in the study)
  1. Pittsburgh, Pennsylvania
  • Ranks 9th overall for price-to-rent ratio (12.26)
  • Ranks 3rd overall for estimated annual cash flow ($6,276)
  • Median home values of $149,200 in 2019 (the 4th-lowest in the study)
  1. Nashville, Tennessee
  • The 3rd-highest increase (55%) in median home values from 2015 to 2019
  • Median home values of $287,300 in 2019
  • Median rents increased by nearly 30% between 2015 and 2019
  • An estimated average annual cash flow of nearly $4,300

Tips for Investing in Long-term Rental Properties

If you’re planning to invest in a long-term rental property, it’s worthwhile to work with a financial advisor. They can help guide you through the process of investing or advise you on how to invest your capital in a real estate investment trust (REIT).

Use an online mortgage calculator to determine how much your monthly payments would be and how much you can comfortably afford. Keep in mind that if you aren’t going to occupy the property, you’ll generally have to put down at least 20%. You’ll also want to factor in closing costs.

If you’re having difficulty determining rent prices, take a look at the rental income for the local real estate market for an indication of how much you should charge. Pay close attention to rent prices for homes that are in the same neighborhood and that have features similar to your rental property.

Lastly, long-term rental properties are an investment, so make sure to protect them by choosing the right tenants. Bad tenants can be a costly mistake, leading to potential property damage, late rent payments, or constant turnover. Be diligent when making your selection, and make sure to include thorough tenant screenings and verifications on top of personal interviews.

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