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The Best (and Worst) US Real Estate Rental Markets in 2014

by Brandon Turner on April 1, 2014 · 20 comments

  
Post image for The Best (and Worst) US Real Estate Rental Markets in 2014

Today RealtyTrac released a new report that shows the best and worst rental markets in America by county.

Although there appears to be good and bad markets in all parts of the nation, perhaps unsurprisingly, the vast majority of the best markets appear to be concentrated throughout the Midwest, while the worst markets tend to focus on  the East and West coastlines, with California leading the pack with 6 of the top 20 worst markets, followed by New York (with 4) and Virginia (with 3).

To determine the best and worst markets, RealtyTrac divided the average 12 month rental income by the median sales price for residential homes in that county. The results show the Annual Gross Yield, which can give an indication to real estate investors which markets will fare better for cash flow.

According to RealtyTrac:

To calculate the annual gross rental yields we used the median sales price for January 2014 except in states where the sales prices is not required to be disclosed on the sales deeds. In those non-disclosure states we used the  median list price for January 2014. The rental rates we used were the average fair market rent on three-bedroom home for 2014 from the U.S. Department of Housing and Urban Development.

Related:The 2% Rule: Fact, Fiction, or Feasible?

The #1 Best and #1 Worst US Rental Markets

According to RealtyTrac’s data, the #1 best US market for rental real estate in 2014 is Wayne County, Michigan – home to the often-infamous (especially on the BiggerPockets Podcast) Detroit. With a median sales price of just $44,900 and an average fair market rent of $1,124, Wayne County appears to provide an incredible return for rental property owners with an annual gross yield of 30% ( but see notes below under “Limitations and Commentary”).

The worst rental market in the US, according to RealtyTrac, is New York County, New York, with a median sales price of $887,000 and average monthly rent of $1,852 – an annual gross yield of just 3%.

Limitations and Commentary

The data released in this study is helpful in understanding the broad strokes of rental markets and the ratio disparity between rent and purchase price throughout the US. However, this data should obviously not be an investors primary source of information when choosing a location.

The data in these charts fails to show:

  • Different rent-to-purchase price ratios within different locations in a county
  • Appreciation potential
  • Population growth/decline
  • Age/condition of the properties
  • Crime rates
  • Vacancy rates
  • Landlord vs. tenant friendly laws
  • and probably a lot more.

These, and numerous other indicators, are incredibly important when looking at a real estate market and something all real estate investors should be aware of before making any purchase.
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Data Source: RealtyTrac

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{ 20 comments… read them below or add one }

Adrian Tilley April 1, 2014 at 12:11 pm

Well, clearly the only thing we can draw from this data is that Josh doesn’t know what he’s talking about…Detroit is number 1!! = )

In all seriousness, I’m jealous of folks in FL…they have some of the top markets in their backyards.

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Joshua Dorkin April 1, 2014 at 12:23 pm

Stop hating on me, Adrian ;)

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Tim April 1, 2014 at 12:27 pm

Another thing to keep in mind is property taxes. I live in #15 Best, Rockford, IL, Winnebago County. The City of Rockford had the 2nd highest tax rate in the Country (entire USofA) last year at 12.1% of assessed value, which is 1/3 of market value. That means a $100,000 market value house, assessed at $33,333 has an annual tax bill of $4,000. Put that in the Bozo computer and see what kind of return you get.

Don’t get me wrong, I have over 60 SFH in the Rockford area and I get a very nice return but taxes take a VERY LARGE bite out of my rental income. On top of the taxes, Rockford has 2 of the worst neighborhoods based on violent crime and census data and a very poor (but improving) school district and I would not put Rockford as one of the top 15 places to invest. Good, but not that good.

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Jeff April 3, 2014 at 9:48 am

Or maybe you just want us to stay away from Rockford. ;D

But seriously, there are a lot of other factors not taken into account in this report. It’s still interesting and, no doubt, useful, but you’re better doing some research on your own before jumping into one of these markets anyways.

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Gene Rampenthal April 3, 2014 at 11:03 am

Good points, Tim, about Rockford. Considering Rockford’s crime and tax situation what would be the best strategies for Winnebago County? Would you concentrate on surrounding areas with great schools? It doesn’t sound like rentals are a good idea.

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Tim April 3, 2014 at 2:54 pm

I think rentals are still good in the Rockford area, you just need to be aware that not every neighborhood is worth investing in. There are many good “working class” areas that you can pick a house up and have it a nice rental for $60k – $70k all in. For that type of price you get a 3/1.5 or 2 with either a 1 or 2 car garage. Rents will be $800-$1,100 and taxes will be about $200-$300/mo. Final point about Rockford is appreciation will never be like on the coasts or in Chicago (75 miles away) but a steady 1%-3% per year is to be expected (not counting forced appreciation when purchased and rehabbed).

Outside of Rockford proper, you can invest in Loves Park, Machesney Park, Roscoe, Rockton, or Belvidere (Boone county). All have decent school districts higher rents, slightly lower taxes (% rate) but higher purchase prices. Just like anywhere each place has its good and bad areas.

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Patrick Huey April 3, 2014 at 6:59 pm

I also live in Rockford, Illinois, and I can vouch for the city having extremely high taxes compared to other metro areas of its size, and crime is a big concern. However, there are decent pockets of town to invest in, and you can buy a property for pennies on what you would normally pay elsewhere in the USA, save for Detroit. Having said that, the public schools are a mess, and a lot of families have been enrolling their children in private and/or church-based schools. It has been struggling for the last 35 years when the first huge factories moved overseas, and while it has had some better moments it hit rock bottom in 2010 at the height (or more appropriately, depth) of the Great Recession. It has been slowly recovering since then, but it has a long way to go.

There are decent places to invest, though. The northeast side of town is decent, and the near southeast side of town, while very much working class, is pretty steady. The near west side of town is really awful and crime ridden, and the southwest side of town is not great either; however, there has been a huge influx of Hispanic residents which has changed the composition of that area. If you are looking just outside of Rockford, there is Loves Park, Machesney Park, Cherry Valley, Rockton and Roscoe to the north, Winnebago just west of town, and further east, Belvidere and Poplar Grove.

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Paul Francis April 1, 2014 at 3:03 pm

Just another ambiguous report from RealtyTrac where we could go through and point out numerous flaws in coming up with a 20 Best and 20 Worst Rental Markets list… good job on pointing out:

The data in these charts fails to show:

Different rent-to-purchase price ratios within different locations in a county
Appreciation potential
Population growth/decline
Age/condition of the properties
Crime rates
Vacancy rates
Landlord vs. tenant friendly laws
and probably a lot more.

And as Tim points out: Property Taxes. I was once a Owner/Broker in Illinois — high property taxes AND tenant friendly laws is enough to keep me away from there. From what I recall, it can easily take 4 months to evict a deadbeat tenant and could cost a lot of money to do so if you come across a tenant that knows how to play the system in Illinois.

Florida? Hurricane Insurance… enough said about that.

Also seems as if the cities I do know that are on that top 20 list have a fairly large amount of people on some type of Government Assistance which is interesting when it comes to that “Average reported rent” number.

Anyways…. I’ll stick to rule #1 and rule #2 when investing in real estate: Stick to what you know and don’t take advice from people that haven’t actually invested / have no experience in the particular market themselves.

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Paul Francis April 1, 2014 at 3:49 pm

Ok… so I got sucked in on the RealtyTrac map and clicked on Clark County, NV where they report the Median Sales price of $160,000 and then they use the Average rent of $1,530 to generate an “Annual Gross Yield” of 11%.

Those numbers are off… Median Sales Price in the Vegas area is currently around $190,000 and for your typical $190,000 house, it’s going to be more like $1,200 a month for rent.

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Phillip Dwyer April 2, 2014 at 3:42 pm

Paul you’re right. They appear to be way off.

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Steve Babiak April 1, 2014 at 4:46 pm

I’ll just repeat what I wrote elsewhere last year ;)
See this link:
http://www.biggerpockets.com/renewsblog/2013/09/20/best-worst-real-estate-markets-847/

“Steve Babiak September 20, 2013 at 7:27 pm
I have to snicker at use of median values and median rents. No way to tell if that median valued property actually gets at least the median rent … so not really meaningful to toss around statistics like that.”

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Sharon Tzib April 2, 2014 at 10:02 am

Thumbs up, Steve!!

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Cheryl C. April 1, 2014 at 5:46 pm

Maybe I should move back home to Tompkins County! Ithaca, to be precise. People have been making big money on student rentals for decades. Little other job opportunities unless you work at Cornell or Ithaca College – but a beautiful place to live. It’s where I learned how to paint and clean (my mother’s) apartments. Fifty cents an hour and a quarter pounder for lunch!

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Nick April 1, 2014 at 5:48 pm

I just picked up a SFR in Wayne county and those numbers seem to be off to me as well.

Maybe a couple of years ago you could pick up a house all in for 45k that would rent for almost $1,200 a month but it’s not that way anymore.

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Thos April 3, 2014 at 11:46 am

Yes, way too much of a meat axe approach. All my juiciest areas–where I typically buy at 20-30% of median value–got red & orange, And thankfully my other best counties didn’t get colors at all, too small to register for RealtyTrac, which is fine by me. Plus the median home prices here are skewed by lots of pricey lake homes, I’ve flipped a few but I can’t make any money renting those!

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Mike B April 3, 2014 at 7:34 pm

I also got a kick out of the “excellent” rating just southwest of red Denver. It is an undeveloped county in the Pike National Forest.

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Abel Vazquez April 4, 2014 at 6:34 am

Wow that’s a bummer since I live in south California. There is a couple bargains here and there where I live at. I guess I am going to be making ALOT of blow ball offers before I actually get one accepted. Great information in this article thank you for sharing.

Abel

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Cameron Benz April 4, 2014 at 6:38 am

Check it out Brandon! Montesano actually ranks as good by the color chart, as does most of Pierce County. I forget what county Montesano is.

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Shaun April 6, 2014 at 8:34 pm

The data and methodology stated seemed pretty vague to me.
Also seems like they didn’t look at every county.
I was kind of surprised that no North East communities were on the list.
Looking at the Heat Map there isn’t one county in all of New England that I can see that has any designation. Without any reason to think otherwise it looks like they just “skipped” that entire region.
Probably not any that would have challenged for the best list, but I bet Suffolk county MA (Basically Boston and a couple small cities that border it) would have been fighting for a spot on the 20 worst since just a quick scan of sales and rents shows it right in the rounded off to 5% range the last half of the list was at.

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jay August 10, 2014 at 9:23 am

Just goes to show how skewed peoples thinking can be when they think the best markets are best only because of these silly ratios.. and the worse markets just happen to be some of the best place’s in America or the World to live… And to maintain property values and actually make money with some hope of appreciation down the line. Need to find that Goldilocks market that is just right, nice combination of the two.. Go for greatest Gross yields puts most investors into some pretty management intensive situations that are probably not appropriate for beginner investors and only for those that have thick skin and really know what they are doing. Now the Worse markets anyone can buy those the management is not intensive per se the only difference is one house is worth 20 plus houses in the BEST market .. Somethings wrong with this picture

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