Editor’s Note: This story originally appeared on SmartAsset.com.
Owning real estate has traditionally been viewed as an effective means of protecting against inflation. The logic is simple: as the prices of goods and services rise, so does the value of the property.
Like other types of property, rental properties can appreciate in value, but that’s not the only benefit of this asset class. Landlords generate residual income or cash flow on their properties, take advantage of certain tax breaks, and build equity while paying back loans (if they are using mortgages).
With inflation rising in the US in 2021, investors may be looking for new real estate markets to invest their money in. With this in mind, SmartAsset set out to find the best places to buy and own long-term rental properties.
To do this, we looked at data from the 120 US cities with populations of 200,000 or more to assess the investment benefits, home affordability, and rental market health in each individual region. For more information on our data sources and how we put all of the information together to create our final rankings, see the Data and Methodology section at the end.
Below are the best places to buy long term rental property in 2021.
1. Port St. Lucie, FL
According to our analysis, Port St. Lucie, Florida is the best place in the US to buy and own long term rental property.
It comes first for home investment benefits, an index in our study that includes the price-to-rent ratio, the four-year change in median home value, and the estimated annual cash flow.
Rental property investors have an estimated annual cash flow of $ 6,096, the fourth best of all cities in our study. And property values rose more than 54% between 2015 and 2019, the fifth largest increase of all 120 cities studied.
2. Buffalo, NY
Buffalo, New York has the fourth highest value for home investment favor, partly due to the fact that average home values rose 55% between 2015 and 2019, the fourth largest increase in the study.
This rust belt town also has the eighth best price-to-rent ratio, which is calculated by dividing the average home value by the average annual rent (the lower the price-to-rent ratio, the better for the investor).
And the average cost of housing (mortgages, taxes, utilities, etc.) in Buffalo is only 13.17% of the national average household income, the third lowest of any 120 cities.
3. Mesa, AZ
Mesa, Arizona, ranks high in our study primarily because of the city’s housing needs. Between 2015 and 2019, Mesa’s population grew 5.46% faster than the housing stock, the sixth largest difference in our study.
The median rents also rose by 26.46% from 2015 to 2019, which is the 17th largest jump among all 120 cities. Rental properties have an estimated annual cash flow of $ 2,880.
4. Tampa, Florida
While Port St. Lucie on Florida’s Atlantic coast is high on our list, the city of Tampa is not far behind. Located on the state’s west coast, Tampa has the 10th highest rating for residential property popularity and the fifth highest rating for rental opportunities.
Median rents rose more than 23% between 2015 and 2019, while unemployment was relatively low (4.6%) in May 2021, making Tampa one of the most attractive places to invest in rental homes.
The median value of a home in Tampa was $ 265,700 in 2019, which is in the middle (59th) of all 120 cities in our study.
5. Birmingham, AL
The capital city of Alabama has the highest home affordability index score of any of the 120 cities in our study.
Property in Birmingham, which had the fifth lowest average home value in 2019 ($ 98,800), is relatively cheap.
The average housing costs were also relatively low compared to the average national household income (14.39%), the fifth lowest in our study.
6. Detroit, Michigan
With the cheapest average home values ($ 58,900) and the best price-to-rent ratio (5.67) across all 120 cities in our study, Michigan’s Motor City is a viable place to invest in rental property.
The cost of housing in Detroit is only 9.90% of the national average household income, also the lowest in our study. With low housing costs, Detroit rental properties generate an estimated cash flow of $ 5,616 per year, the seventh best overall.
7. Glendale, Arizona
Glendale, Arizona ranks ninth overall for home affordability, partly due to a low average effective property tax rate (0.56%), which ranks 15th in our study.
Home prices are also relatively cheap ($ 241,100 in 2019). Glendale rental properties also had an average cash flow of $ 2,712 per year, which placed the city in the top third of the study for this metric.
8. Huntsville, AL
Huntsville, Alabama, has a particularly affordable housing market. In 2019, the median home value of a home in the city was $ 185,200 (34th-lowest), while the average effective property tax rate was only 0.54%, which is good for 11th overall.
The city’s population is also growing faster than residential units are being built. In fact, Huntsville saw nearly 5% population growth between 2015 and 2019, outpacing residential unit growth, the ninth-highest rate for this metric in the study.
9. Pittsburgh, PA
Pittsburgh, Pennsylvania – the third Rust Belt city to crack the top 10 – ranks ninth in price-to-rent ratio (12.26) and third in estimated annual cash flow ($ 6,276).
Real estate investors can also be attracted to relatively cheap homes in Steel City: The average home value was just $ 149,200 in 2019, the 14th lowest in our study.
10. Nashville, TN
Nashville, Tennessee saw the third-highest increase in average home values from 2015 to 2019, when home prices rose over 55%.
While homes in the Nashville area are more expensive ($ 287,300 in 2019) than nearly 60% of all places in our study, real estate investors could be drawn to average annual cash flow of nearly $ 4,300 and average rents in the Music City area between 2015 and 2015 Up almost 30% in 2019.
Data and methodology
To evaluate the best places to buy and own long-term rental properties, we looked at data from all cities with at least 200,000 residents. That left us with a total of 120. We then compared them in these three categories:
- Preference for home investment. This is an index that comprises the following three key figures: price-to-rent ratio (median value of the apartment divided by median of the annual rent), percentage change in the median values of the apartment between 2015 and 2019 and estimated annual cash flow (75th percentile of the Rent minus average housing costs). We weighted the estimated annual cash flow twice, making it the most important key figure in our study.
- Affordability at home. This is an index that comprises the following three metrics: effective property tax rate 2019 (annual property taxes divided by median home value), 2019 median home value and housing costs as a percentage of national median household income.
- Rental opportunities. This is an index that comprises the following three measures: percentage point difference between population growth and housing unit growth from 2015 to 2019, the unemployment rate from May 2021 and the four-year change in median rent between 2015 and 2019.
With the exception of unemployment, the data for all metrics comes from the Census Bureau’s annual American Community Surveys for 2015 and 2019. The May 2021 unemployment rate is from the Bureau of Labor Statistics.
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