Top Rental Investing Markets Under $75k

For the last several weeks I have been investigating potential cities for my rental investments.  I expect to hold a mix of lower-priced homes that will be purchased with cash along with higher-priced homes where I will use ~75% debt to enhance returns.  Given the limits many lenders have on the total number mortgages and the minimum loan amounts from others, I have decided to preliminarily draw the line at $75k for financed properties and I would prefer to only finance properties above $100k.

Looking for 15%+ Returns? See A List of Top Markets Over $75k

Today, I will outline several compelling cities for the all-cash portion of my real estate rental portfolio.  Of the 1,500 largest cities in the country there are roughly 40 cities with median prices below $75k.  Those cities are heavily concentrated in the midwest where the cost of living is lower.  The average all-cash returns for all 40 markets is 8% based on the standard 50% assumption for operating costs.

In addition to considering the median returns for each city I also focused on the median income-to-rent ratio, the % of households living below the poverty line, % of people 25yrs+ that are unemployed, and the relative crime level. Below is an overview of each of the top markets based on my analysis. In the coming weeks, I will post more detailed evaluations of each city.

In the meantime, I would love to see comments from any experienced investors who are already working in these markets. 

Trenton, NJ

Trenton is one of the few examples of a lower-priced, higher returning market in the Northeast. Returns are well above average while the population stability should help ensure stable rental demand.  The biggest consideration would be the high property taxes in Trenton.  Typically taxes can be covered by 2 months rent while in Trenton there were several examples of 3 bedroom homes with annual taxes as high as $6,600.  Prospective investors would likely want to avoid properties with the highest tax assessments.  Luckily there are also examples of homes with annual taxes less than $2,500 that could easily be targeted.

• Median Price (typical range): $63k ($42-84k)
• Median Rent (typical range): $1,150/mo ($1,000-1,300)
• Median All-Cash Returns: 11%
• 2014 Population: 84k (-2% since 2000)
• Median Annual Income: $36,803
• Income/Rent: 32x
• Population Below Poverty: 22.90%
• Unemployed %: 10.5%
• Crime Index: 496.3
• Median Property Taxes: $3,478/yr (3.3 mo rent)

Detroit, MI

Detroit is a market that I know very well.  The rental return potential is as high as anywhere in the country.  I believe the local population has stabilized, but given the high poverty rate and crime levels there are many neighborhoods that you will want to avoid completely.  I will be releasing a neighborhood guide for prospectiveinvestors, but you will almost certainly need experienced local professionals to take advantage of the opportunities in this market.  I have always managed my own properties in Detroit, but I will be meeting with several local property managers to see if I can find a reliable partner with extensive experience working with the city limits.  I will share contact information for the best folks that I find.

• Median Price (typical range): $37k ($18-57k)
• Median Rent (typical range): $750/mo ($650-850)
• Median All-Cash Returns: 12%
• 2014 Population: 680k (-29% since 2000)
• Median Annual Income: $24,820
• Income/Rent: 33x
• Population Below Poverty: 40.70%
• Unemployed %: 21.1%
• Crime Index: 888.8
• Median Property Taxes: $1,610/yr (2.1 mo rents)

Redford, MI

Redford is a suburb of Detroit and benefits from the low cost of living and high rent to sales price ratio of the broader metro area. Sales prices are rou

ghly twice what you find in the city, but in exchange you get modestly higher rent, higher incomes, and likely more stable tenants.  All-in you can't replicate the potential upside of the Detroit returns, but vacancy and potential eviction costs should be considerably lower in Redford.

• Median Price (typical range): $70k ($25-96k)
• Median Rent (typical range): $921/mo ($850-1,050)
• Median All-Cash Returns: 8%
• 2014 Population: 50k (-3% since 2000)
• Median Annual Income: $49,171
• Income/Rent: 33x
• Population Below Poverty: 9.2%
• Unemployed %: 3.8%
• Crime Index: N/A
• Median Property Taxes: $1,530/yr (1.6 mo rents)

Youngstown, OH

I do not have any personal experience investing in Youngstown, but the statistics imply that this is a market worth exploring further.  While the income and poverty levels are in-line with similarly priced midwestern cities like Detroit and Cleveland, the crime level and unemployment is lower while the property taxes are below average.    

• Median Price (typical range): $33k ($20-50k)

  

• Median Rent (typical range): $580/mo ($550-750)
• Median All-Cash Returns: 11%
• 2014 Population: 65k (-21% since 2000)
• Median Annual Income: $24,767
• Income/Rent: 40x
• Population Below Poverty: 40.2%
• Unemployed %: 11.3%
• Crime Index: 496.3
• Median Property Taxes: $852/yr (1.4 mo rents)

Information Sources & Assumptions

• Purchase price and Rent ranges based on homes with 3 or more bedrooms and a minimum of 1,000 square feet
• Purchase prices sourced from Zillow while Rent ranges are sourced from Craigslist
• Returns assume 50% assumption for operating expenses and a 100% cash purchase
• All other information is taken from City-data.com