The 15 Best Cities to Invest in a Rental Property

Editor's Note: This story originally appeared on Stessa.

The frenzied real estate market over the last two years has been challenging for many homebuyers, but for those who have been able to buy, the return on investment has been strong. Homes are appreciating at a record pace, with sale prices rising around 20% from 2020 to 2021.

With these rapid increases in home values, some investors are looking to rental properties as a source of potential returns. While many of those capitalizing on the current state of the market are institutional investors, the current market conditions could present opportunities for small-scale investors as well.

However, these would-be landlords must assess how rapid shifts in the value of real estate could affect their investments in the short and long term.

To identify the best locations for buying a rental property, our researchers created a composite index based on five key factors that real estate investors consider when evaluating a market. These factors include the gross rent multiplier, recent and forecasted home price growth, effective property tax rates, and population growth.

Data sources include the U.S. Census Bureau, Zillow, and the Department of Housing and Urban Development. To improve relevance, only locations with at least 100,000 residents and available data from all sources were included in the analysis.

Here are the best U.S. metropolitan areas to invest in a rental property.

15. Nashville/Davidson-Murfreesboro-Franklin, TN

• Composite index: 53.27
• Gross rent multiplier: 21.4
• Median monthly rent: $1,422
• Median home price: $365,573
• Year-over-year change in home price: +20.9%
• Forecasted home price growth: +19.0%
• Effective property tax rate: 0.56%
• Year-over-year change in population: +1.4%

14. Miami-Fort Lauderdale-Pompano Beach, FL

• Composite index: 53.81
• Gross rent multiplier: 17.4
• Median monthly rent: $1,798
• Median home price: $375,082
• Year-over-year change in home price: +18.2%
• Forecasted home price growth: +20.6%
• Effective property tax rate: 0.92%
• Year-over-year change in population: +0.1%

13. Charlotte-Concord-Gastonia, NC-SC

• Composite index: 54.74
• Gross rent multiplier: 20.3
• Median monthly rent: $1,306
• Median home price: $317,876
• Year-over-year change in home price: +23.8%
• Forecasted home price growth: +23.0%
• Effective property tax rate: 0.77%
• Year-over-year change in population: +1.7%

12. Las Vegas-Henderson-Paradise, NV

• Composite index: 55.19
• Gross rent multiplier: 21.2
• Median monthly rent: $1,488
• Median home price: $378,476
• Year-over-year change in home price: +24.1%
• Forecasted home price growth: +18.5%
• Effective property tax rate: 0.58%
• Year-over-year change in population: +1.8%

11. San Antonio-New Braunfels, TX

• Composite index: 55.41
• Gross rent multiplier: 16.6
• Median monthly rent: $1,308
• Median home price: $260,466
• Year-over-year change in home price: +19.3%
• Forecasted home price growth: +17.6%
• Effective property tax rate: 1.62%
• Year-over-year change in population: +1.6%

10. Houston-The Woodlands-Sugar Land, TX

• Composite index: 55.76
• Gross rent multiplier: 15.8
• Median monthly rent: $1,410
• Median home price: $267,794
• Year-over-year change in home price: +17.9%
• Forecasted home price growth: +15.5%
• Effective property tax rate: 1.67%
• Year-over-year change in population: +1.3%

9. Oklahoma City, OK

• Composite index: 57.21
• Gross rent multiplier: 15.0
• Median monthly rent: $1,056
• Median home price: $190,559
• Year-over-year change in home price: +13.7%
• Forecasted home price growth: +11.9%
• Effective property tax rate: 0.93%
• Year-over-year change in population: +1.1%

8. Phoenix-Mesa-Chandler, AZ

• Composite index: 57.45
• Gross rent multiplier: 21.7
• Median monthly rent: $1,572
• Median home price: $410,028
• Year-over-year change in home price: +32.2%
• Forecasted home price growth: +23.8%
• Effective property tax rate: 0.57%
• Year-over-year change in population: +2.1%

7. Memphis, TN-MS-AR

• Composite index: 59.35
• Gross rent multiplier: 15.3
• Median monthly rent: $1,077
• Median home price: $198,369
• Year-over-year change in home price: +17.7%
• Forecasted home price growth: +16.4%
• Effective property tax rate: 1.01%
• Year-over-year change in population: +0.2%

6. Tulsa, OK

• Composite index: 59.55
• Gross rent multiplier: 14.8
• Median monthly rent: $1,028
• Median home price: $181,919
• Year-over-year change in home price: +14.5%
• Forecasted home price growth: +14.1%
• Effective property tax rate: 0.95%
• Year-over-year change in population: +0.7%

5. Jacksonville, FL

• Composite index: 61.17
• Gross rent multiplier: 17.7
• Median monthly rent: $1,418
• Median home price: $301,415
• Year-over-year change in home price: +23.5%
• Forecasted home price growth: +23.8%
• Effective property tax rate: 0.90%
• Year-over-year change in population: +1.7%

4. Atlanta-Sandy Springs-Alpharetta, GA

• Composite index: 61.70
• Gross rent multiplier: 17.4
• Median monthly rent: $1,506
• Median home price: $315,033
• Year-over-year change in home price: +23.0%
• Forecasted home price growth: +23.9%
• Effective property tax rate: 0.88%
• Year-over-year change in population: +1.0%

3. Birmingham-Hoover, AL

• Composite index: 62.03
• Gross rent multiplier: 15.9
• Median monthly rent: $1,100
• Median home price: $210,425
• Year-over-year change in home price: +15.3%
• Forecasted home price growth: +13.2%
• Effective property tax rate: 0.49%
• Year-over-year change in population: +0.1%

2. Orlando-Kissimmee-Sanford, FL

• Composite index: 63.00
• Gross rent multiplier: 16.0
• Median monthly rent: $1,678
• Median home price: $321,666
• Year-over-year change in home price: +18.7%
• Forecasted home price growth: +15.8%
• Effective property tax rate: 0.86%
• Year-over-year change in population: +1.2%

1. Tampa-St. Petersburg-Clearwater, FL

• Composite index: 65.26
• Gross rent multiplier: 17.0
• Median monthly rent: $1,523
• Median home price: $310,378
• Year-over-year change in home price: +27.7%
• Forecasted home price growth: +27.2%
• Effective property tax rate: 0.90%
• Year-over-year change in population: +1.4%

Methodology

To identify the best locations for buying a rental property, researchers created a composite index based on the following factors:

• Gross rent multiplier (50%) – The ratio of a location’s median home price to its annual gross rent. For a real estate investor, a lower gross rent multiplier represents a better opportunity.
• Year-over-year change in home price (10%) – The percentage change in the median home price between September 2020 and September 2021.
• Forecasted home price growth (10%) – The forecasted one-year change in home price from September 2021 to September 2022.
• Effective property tax rate (20%) – An estimate of the location’s property tax burden by dividing total property taxes paid in 2019 by the aggregate value of those properties. A lower value is better for investors.
• Year-over-year change in population (10%) – The percentage change in population between 2019 and 2020.

Data sources include: U.S. Census Bureau’s 2019 American Community Survey and Population Estimates; Zillow’s Price Forecasts and Zillow Home Value Index; Department of Housing and Urban Development’s 50th Percentile Rent Estimates.

To improve relevance, only locations with at least 100,000 residents and available data from all sources were included in the analysis.