The 15 Best Cities to Buy a Rental Property

buying a rental property
Tiko Aramyan / Shutterstock.com

This story originally appeared on Construction Coverage.

While the COVID-19 pandemic has been detrimental to many American families, it has helped solidify the financial footing of others. With less money being spent on expenses like travel, commuting, or eating out, household savings rates rose to record levels in 2020. For middle- and high-income workers whose jobs were not interrupted by the pandemic, direct payments from the federal government and other economic stimulus funds also meant more money in the bank. And with at least a few more months before the bulk of the U.S. is vaccinated and life begins returning to normal, many of those people have been looking for the best ways to manage that money while waiting out the pandemic.

Many have turned to real estate, sending residential sales skyrocketing in 2020. Rental properties, in particular, are a product with steady demand, even in difficult economic times, and rent payments often cover the bulk of the investor’s costs over the life of the investment. Current mortgage interest rates are low, which means that favorable financing is easier to obtain. And while the residential real estate market is highly competitive for buyers at the moment due to low housing inventory, these conditions are also accelerating an appreciation in home values nationwide, which boosts investors’ long-term returns.

As is often the case with real estate, the potential investment opportunity in rentals looks different across different local markets. The key measure to analyze is gross rent yield, or the annualized rent to home price ratio. In general, there is a strong correlation between home prices and rent, which makes sense because one of a landlord’s primary considerations in setting rent is the cost of their home loan payments. But home prices tend to vary more across markets than rents do, so areas with more expensive homes will not generate as favorable of a return as areas with lower-priced homes but comparable rent levels.

To identify the states and metros where rentals are the best investment, researchers at Construction Coverage created a composite score based on five key factors. The most important is gross rent yield, which accounts for half of the composite index; higher scores are preferable. Other factors include recent and projected changes in home prices, which indicates the potential long-term returns; the property tax burdens, which can increase costs for owners; and the unemployment rate, which is preferred to be lower, indicating that more potential tenants are working and have the ability to pay rent.

At the state level, this combination of factors highlighted locations in the South and Midwest as best for buying a rental property. Alabama (88.3 out of 100 on the composite score), Oklahoma (85.5), and West Virginia (85.2) led all states. States in these regions tend to have lower median home values, which improves the gross rental yield, and property owners also benefit from lower property tax levels.

The story is much the same at the metro level. Many of the best markets to buy a rental are located in states that our composite score highlighted, and largely for the same reason: lower home values driving the key ingredient in the index, a favorable gross rental yield.

Keep reading for the best large metropolitan areas (population 1 million or more) to buy a rental property.

15. Kansas City, MO-KS

Kansas City, Missouri
Scruggelgreen / Shutterstock.com
  • Composite score: 75.8
  • Gross rental yield: 6.05%
  • Median home price: $220,301
  • Previous 1-year change in home price: 9.98%
  • Projected 1-year change in home price: 10.40%
  • Average property tax burden: 1.17%
  • 2019 unemployment rate: 3.4%

14. Miami-Fort Lauderdale-Pompano Beach, FL

Miami, Florida
littleny / Shutterstock.com
  • Composite score: 76.3
  • Gross rental yield: 6.69%
  • Median home price: $312,574
  • Previous 1-year change in home price: 6.98%
  • Projected 1-year change in home price: 8.40%
  • Average property tax burden: 0.92%
  • 2019 unemployment rate: 4.3%

13. Virginia Beach-Norfolk-Newport News, VA-NC

Ritu Manoj Jethani / Shutterstock.com
  • Composite score: 76.3
  • Gross rental yield: 6.55%
  • Median home price: $259,731
  • Previous 1-year change in home price: 7.78%
  • Projected 1-year change in home price: 9.50%
  • Average property tax burden: 0.84%
  • 2019 unemployment rate: 5.1%

12. Orlando-Kissimmee-Sanford, FL

Orlando, Florida
songquan-deng / Shutterstock.com
  • Composite score: 76.7
  • Gross rental yield: 6.57%
  • Median home price: $268,806
  • Previous 1-year change in home price: 7.17%
  • Projected 1-year change in home price: 8.80%
  • Average property tax burden: 0.86%
  • 2019 unemployment rate: 4.1%

11. Pittsburgh, PA

Pittsburgh
esb-professional / Shutterstock.com
  • Composite score: 77.0
  • Gross rental yield: 6.69%
  • Median home price: $174,771
  • Previous 1-year change in home price: 9.25%
  • Projected 1-year change in home price: 10.10%
  • Average property tax burden: 1.48%
  • 2019 unemployment rate: 4.3%

10. Phoenix-Mesa-Chandler, AZ

John Wollwerth / Shutterstock.com
  • Composite score: 77.3
  • Gross rental yield: 5.35%
  • Median home price: $315,045
  • Previous 1-year change in home price: 15.30%
  • Projected 1-year change in home price: 14.70%
  • Average property tax burden: 0.57%
  • 2019 unemployment rate: 4.5%

9. New Orleans-Metairie, LA

New Orleans, Louisiana at night
f11 photography / Shutterstock.com
  • Composite score: 77.7
  • Gross rental yield: 6.65%
  • Median home price: $217,016
  • Previous 1-year change in home price: 7.49%
  • Projected 1-year change in home price: 8.00%
  • Average property tax burden: 0.65%
  • 2019 unemployment rate: 5.4%

8. Atlanta-Sandy Springs-Alpharetta, GA

Atlanta, Georgia
Sean Pavone / Shutterstock.com
  • Composite score: 77.8
  • Gross rental yield: 6.51%
  • Median home price: $255,109
  • Previous 1-year change in home price: 8.93%
  • Projected 1-year change in home price: 10.10%
  • Average property tax burden: 0.88%
  • 2019 unemployment rate: 4.3%

7. Detroit-Warren-Dearborn, MI

Detroit, Michigan
Susanne Pommer / Shutterstock.com
  • Composite score: 78.1
  • Gross rental yield: 6.72%
  • Median home price: $195,270
  • Previous 1-year change in home price: 9.78%
  • Projected 1-year change in home price: 12.30%
  • Average property tax burden: 1.37%
  • 2019 unemployment rate: 5.3%

6. Indianapolis-Carmel-Anderson, IN

Indianapolis, Indiana
Alexey Stiop / Shutterstock.com
  • Composite score: 78.2
  • Gross rental yield: 6.34%
  • Median home price: $200,366
  • Previous 1-year change in home price: 10.59%
  • Projected 1-year change in home price: 9.80%
  • Average property tax burden: 0.88%
  • 2019 unemployment rate: 4.2%

5. Rochester, NY

Rochester New York
TarnPisessith / Shutterstock.com
  • Composite score: 78.3
  • Gross rental yield: 7.20%
  • Median home price: $169,546
  • Previous 1-year change in home price: 9.87%
  • Projected 1-year change in home price: 10.50%
  • Average property tax burden: 2.56%
  • 2019 unemployment rate: 4.1%

4. Oklahoma City, OK

Oklahoma City skyline
Natalia Bratslavsky / Shutterstock.com
  • Composite score: 79.8
  • Gross rental yield: 7.48%
  • Median home price: $171,213
  • Previous 1-year change in home price: 7.36%
  • Projected 1-year change in home price: 7.30%
  • Average property tax burden: 0.93%
  • 2019 unemployment rate: 4.1%

3. Memphis, TN-MS-AR

Memphis, Tennessee
Steven Frame / Shutterstock.com
  • Composite score: 81.7
  • Gross rental yield: 7.69%
  • Median home price: $167,904
  • Previous 1-year change in home price: 10.57%
  • Projected 1-year change in home price: 9.70%
  • Average property tax burden: 1.01%
  • 2019 unemployment rate: 6.0%

2. Tampa-St. Petersburg-Clearwater, FL

Tampa, Florida
kevin-j-king / Shutterstock.com
  • Composite score: 81.8
  • Gross rental yield: 6.76%
  • Median home price: $240,308
  • Previous 1-year change in home price: 11.43%
  • Projected 1-year change in home price: 12.30%
  • Average property tax burden: 0.90%
  • 2019 unemployment rate: 4.6%

1. Birmingham-Hoover, AL

Birmingham, Alabama
Sean Pavone / Shutterstock.com
  • Composite score: 86.6
  • Gross rental yield: 7.61%
  • Median home price: $184,012
  • Previous 1-year change in home price: 9.27%
  • Projected 1-year change in home price: 9.10%
  • Average property tax burden: 0.49%
  • 2019 unemployment rate: 4.5%

Methodology & Detailed Findings

House for rent
Andy Dean Photography / Shutterstock.com

To identify the best cities and states to buy rental property, researchers created a composite score using the following metrics:

  • Gross rental yield: The ratio of annualized median rent to Zillow’s Home Value Index
  • Previous 1-year change in home price: A smoothed, seasonally adjusted measure of the typical home value and market changes across a given region and housing type
  • Projected 1-year change in home price: The one-year forecast of the Zillow Home Values Index
  • Average property tax burden: Aggregate annual real estate taxes paid as a proportion of aggregate home value
  • 2019 unemployment rate: Percentage of the population that is unemployed

For the gross rental yield, previous 1-year change in home prices, and projected 1-year change in home prices, a higher number was associated with being better for buying a rental property. For the average property tax burden and unemployment rates, a lower number was associated with being better for buying rental property. Metrics were given the following weight in the calculation of the composite score: gross rental yield (50%); previous 1-year change in home price (10%); projected 1-year change in home price (10%); average property tax burden (20%); 2019 unemployment rate (10%).

Gross rental yield data was derived from the Department of Housing and Urban Development (HUD), the U.S. Census Bureau’s 2019 American Community Survey (ACS), and Zillow. Gross rental yield was calculated as the ratio of annualized median rent to Zillow’s Home Value Index. Median rent was calculated as the weighted average of rent for a studio, 1-bedroom, 2-bedroom, 3-bedroom, and 4-bedroom apartment. The number of renter households by bedroom from the ACS were used as weights. Home price data came from Zillow’s most recent Home Value Index. Projected 1-year change in home prices for the states were calculated by finding the population-based weighted average of the composite metro values within each state. Property tax data and unemployment rates came from the U.S. Census Bureau’s 2019 ACS. The average property tax burden for each metro was calculated by dividing aggregate real estate taxes paid by the aggregate value of homes in each location.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
29 Purchases That Can Save You Money Every Day
29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

This Pastime Can Keep Your Brain Sharp as You Age
This Pastime Can Keep Your Brain Sharp as You Age

It’s never too late to benefit from taking up this type of activity.

The 10 Worst Types of Tickets for Your Car Insurance Rate
The 10 Worst Types of Tickets for Your Car Insurance Rate

Some types of traffic violations can drive your car insurance rate more than 25% higher.

Not Asking About This in the Hospital Can Cost You Thousands
Not Asking About This in the Hospital Can Cost You Thousands

Medicare recipients who fail to clarify their hospital status can pay a high price.

The Worst Nursing Homes in America Are Revealed
The Worst Nursing Homes in America Are Revealed

The nursing homes with a history of providing subpar care previously hadn’t been identified for a government list.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Types of Retirement Income That Are Not Taxable
10 Types of Retirement Income That Are Not Taxable

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

17 Amazon Purchases We Are Loving Right Now
17 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.