What are the Best Cities for Rental Properties?

Many investors cannot buy cash flowing properties where they live locally due to high home values. Many investors also want to diversify their rental property portfolio by investing in out-of-state rental properties. The hard part about investing in long-distance properties is deciding where to buy out-of-state properties. Where are investors buying and where can you get great cash flow?

What cities are turn-key rental property companies investing in?

I have done a lot of research on turn-key rental property providers and I wrote an article on the basics of turn-key investing here. Turn-key rental property providers buy homes, renovate them and then place a tenant in the home. After the home is rented and managed, they sell the home to investors. I noticed many trends of where the turn-key investment companies are investing. Below are the most common places I have seen the turn-keys set up shop.

Memphis

Memphis appears to be the number one place for turn-keys with relative low house prices and high rental rates. There are at least five turn-key companies investing in Memphis now. In fact some turn-key companies are moving out of Dallas because there are so many investors there, they are worried about the market. For a list of my turn-key providers please send me an inquiry here.

Indianapolis

Indianapolis is another popular spot for the turn-key providers. There are many turn-key companies investing in Indianapolis, because of low prices compared to high rents.

Dallas/Houston

Texas is a popular spot for the turn-keys as well. Texas has one of the most stable economies in the country and affordable real estate. However, Texas has very high taxes in some locations that makes it hard to cash flow. Texas is also predicted to have one of the strongest economies moving forward.

Florida

The turn-keys are still investing in Florida as well. South Florida like the Miami area has seen huge increases in property values and the focus seems to have shifted to mid Florida for cash flowing rental properties. Florida still has many foreclosures and opportunities to buy below market value.

Kansas City/St Louis

The turn-keys are also focusing on Kansas City and St Louis, although these areas have seen appreciating prices as well.

Ohio

Ohio has many affordable housing markets; some are affordable because the economy is horrible and others are affordable because there is nothing flashy to Ohio. I know a couple of turn-key companies that focus in Ohio and have great cash flowing properties.

Milwaukee

Many investors have swarmed to Milwaukee due to its low prices and high rents. I know a couple of turn-key companies in Milwaukee and many investors in the area buying with great cash flow.

What cities are the hedge funds buying long-distance properties in?

A few years ago hedge funds like Blackstone and Colony Capital started buying thousands of properties that they turned into rental properties. The most popular locations for the hedge funds were Southern California, Phoenix, Las Vegas, Atlanta, Southern Florida and other large metro areas. Here is a great article on how many homes the hedge funds have bought in Tampa Bay and how their buying has decreased recently.

The hedge funds have toned down their investing in these areas greatly because of high appreciation. The rent to value ratios in these areas have decreased and caused hedge funds to look elsewhere. Many hedge funds have ramped down their buying significantly because of the issues involved in renting and managing thousands of rental homes.

An interesting piece of information from the FICON conference was that hedge funds have started looking into buying homes in Europe. The European market is crashing due to the economy and houses can be bought extremely cheap. One company I talked to said they are buying homes at 20 cents on the dollar of what they sold for a few years ago and they are making 30 to 40 percent returns on their investment!

What areas of the country have the best economic outlook?

It is not only important to look at cash flow when deciding on an area to invest in, but the local economy of areas as well. There were a lot of economist and data experts at the conference who spoke about economic trends in different locations. I learned that the hedge funds and large investors do not randomly pick locations to buy real estate. They use professional firms to accumulate as much information as possible to pick locations. Some of the areas of the country with the best economic growth coincide with where the turn-keys are buying.

Memphis

Predicted to have 33% percent appreciation over the next five years. Memphis has a very stable economy with many large businesses headquartered in the area.  This may be why there are so many turn-key providers in Memphis.

Charlotte

Charlotte is expected to have 25% appreciation and an extremely strong local economy. Many of the economists said Charlotte has incredible growth potential with a new Boeing plant being built and has been off many investors radar up to this point.

Houston/Dallas

Texas has a great economy anchored by the oil and has industry. Exxon is building a 3 billion dollar facility by Houston with 25,000 new jobs expected. Houston and Dallas is another area that keeps getting mentioned as a great opportunity for investors.

What does this data say about where out-of-state investors should be investing?

The tricky part about choosing a location to invest in is nobody knows what will actually happen. Even the smartest economists and investors can’t predict what will happen in specific locations. Having said that, the economists, turn-key companies and hedge funds spend a lot of money researching where to invest and what areas will provide the best returns. It may not be a bad thing to listen to the experts if you are trying to decide on a great place to invest. There are many other great places to invest besides what I listed here. I have also heard of great opportunities in Ohio, Milwaukee, Atlanta, Columbia and more. Columbia homes for sale are probably the least expensive of the cities on that list. I am going to keep investing locally because of the huge advantages I have as an agent and the reduction in costs.

Conclusion

Buying out-of-state properties is a challenge and risky. However, it is the only way some investors can find cash flowing properties. I would always try to visit any area you are going to invest in and if you have friends or family there, that would be a huge bonus. If you want to take the work out of buying out-of-state you may want to look into turn-key rental properties that are repaired, rented and managed by a property manager.

32 thoughts on “What are the Best Cities for Rental Properties?”

  1. I know this is an old article, but a lot of what’s listed here is still true. Especially in Houston, where I’m at. Houston is a HOT market, and even though I’m expecting a market crash in the near future, it’s still going to continue to be a hot market. In general, Texas, as you said, has an economy that can be self-sufficient and recover from economic downturns fairly quickly.

  2. I’ve heard a lot of turn key investors buying up properties in Memphis because they are so cheap.
    Do you think there buying them cash or getting loans on them? What do you think is the best route to go?
    Wish prices were so low everywhere else.

    • Most people cash if the property is below $50,000. Hard to get a loan on those houses. I prefer to get a loan myself

  3. There sure is a lot more turn key property companies who buy / rehab / rent / and sell a bunch of these turn key homes all across America. Must be a very profitable business. Thanks for the article.

  4. Mark – When was this article originally written? I am a beginner investor trying to do some initial scoping. he article was great – just wanted to see how recent it was. Written 2015 I presume?

  5. Charlotte has incredible growth potential with a new Boeing plant being built and has been off many investors radar up to this point. Did you mean Charleston???

  6. Kansas City is a great buy and hold market. One thing I see too much of is these “turnkey” properties look great on paper but in reality they are in horrible areas and sold to out of state investors who don’t understand the local market. Because of high turnover, vandalism, poor property management all of the sudden this great cash flowing investment is now a money pit that is difficult to get rid of. I recently started providing services to help these out of town investors. I visit properties for them and report back, check up on their rehab project, and do monthly checkups on their properties. Without family and friends in the area it’s difficult to know who to trust so essentially I am their eye & ears in Kansas City.

    • I agree Chris. I live, own and manage property in KC. I get frustrated with investors that are sold properties in KC and then left to fend for themselves. Everyone seems to forget or not realize that one of the greatest issues in owning rental property is having a great support staff on the ground. I have seen many PM’s take advantage of out of town owners. The lack of integrity in this business is dis-heartening. I handle properties in the inner core and the return on investment is great if you have a very strong management team. If I can give one piece of advice to an investor it would be to run your property managers credit. That will give you the best snap shot of the health of your PM. I have thought of going on a speaking tour to spread the news on how to hire the best PM. There are so many things that investor don’t do. Due diligence is, I feel, just as important when hiring a PM as it is when purchasing an investment property. One last piece of advice with regards to potential tenants, HOME VISITS! go see how and where they live before you rent to a tenant.

  7. Houston and Dallas are great but they are turning into huge cities. If/when a slower economy comes into play those cities will see a contraction. I’d highly recommend you visit the cities listed above before you buy a turn key.

    The Austin area is great but getting a rental property to cash flow is tough. Most investors are betting on appreciation.

    I know a little about Indianapolis and Ben Grise is a great contact to work with. You can find him on BP. Most of his deals are getting bought by “turn key” companies and then resold to out of state investors.

  8. Great article Mark, very insigtful. How did you find out about FICON, is this a group I can join?

    I own 2 rental in the Charlotte area and I am currently looking to get a third. First two are cash flow positive and have been for the last 5 years. Yield is around 9.5% on both. There is alot of growth in the suburbs around the city center and that’s where I tend to invest. There are also a lot of transplated New Yorkers which is where I live so I feel comfortable owning there.

    As I have been looking for my third property I have noticed anything around $100,000 gets snatched up within a couple weeks. Prices are increasing this year is the first time I have noticed it that. My first home down there is up in value around 15% to 20% from when I bought it. So Charlotte is dead on.

  9. I have access to over 40 properties in indianapolis, indiana—-about 90% are cash flowing… I like to see the little guy get theirs…. so if you guys are interested in one or any of the properties I have access to, please contact me

    HAVE A SUN SHINEY DAY 🙂

  10. Mark first, I would like to thank you for creating such an informative web site, it really is a great help to many especially for people in the same situation as me. I have many rentals in New Zealand, but over the last ten years yields have gone to about 4% and are cash flow negative with a mortgage, so I want to expand out of my country, after reading your web site, i am most interested in Houston and possible florida, but since I am open to investing anywhere in the world, can you please tell in which European country the company you meet at the FINCON conference was able to but properties at 20 cents to the dollar?

    Also can you tell me when hedge funds invest in rentals are they using financing or buy out right with cash? as I may look at investing in these funds as an alternative, to buying personally,

    I look forward to your reply Greg

    • Hi Greg, The company did not disclose where they were buying, they just said Europe. American Homes 4 rent, Colony Capital, Blackstone Group all invest in rentals, but I do not believe they are set up for individual investors to invest in them. Most of them use cash to buy properties, but Blackstone did get a line of credit recently.

  11. “I have also heard of great opportunities in Ohio, Milwaukee, Atlanta, Columbia and more.”

    Columbia? Really, lol! One thing I like about Houston is there are other industries besides oil and gas there, such as tech, manufacturing, and medical. I think I read something like 125 new people are moving to Houston every day – crazy!

  12. Interesting. Of course, these turn-key investors and hedge funds make for incredibly stiff competition from a small time investor’s standpoint (such as mine). I don’t happen to live in any of these areas, and I’m not sure how I would compete without having knowledge of the local economy, neighborhoods, etc. Still, a good read and some useful information, thanks.

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