Which cities have the most promise for long-term rentals (cash flow)?

Question

Hello everyone!

I'm interested in buying my first investment rental property with the goal of maximizing cash flow (e.g. targeting multi-family where possible). I am in New York so I'm looking to buy out of state.

What are some of the most promising cities for multi-family rentals with a growing population/job market and ideally low risk of property tax creep? Additionally, are there any websites / apps that folks use to discover promising cities for RE investments?

Some areas i'm interested in:

1. Columbus, Ohio2. Orlando3. Jacksonville

I'm starting my journey with RE and I want to be careful and deliberate with my first buy.

Eric Fernwood · Answer

Hello @Andrew Potievsky,

When comparing locations, I always consider operating costs and other factors that can affect my ability to make a profit. I will begin by examining operating costs.

Operating Costs

Below is a comparison of income taxes, insurance, and property taxes for Ohio and Florida, along with Nevada as a reference point.

Sources:

• State average insurance cost
• State average property tax
• State Income Tax

To put this in perspective, below is the annual overhead cost for a $400,000 property.

To achieve the same net cash flow, a property in Columbus would have to generate almost $5,000 ($8447 - $3544) more in annual rent than one in Las Vegas due to higher operating costs.

Rent Control

Rent control can prevent you from increasing your rent to keep pace with inflation, limit your ability to select the best tenant, or remove a non-performing tenant cost-effectively and expeditiously. Below is a list of rent control.

• Columbus - Yes
• Orlando - Yes/[No](https://www.doorloop.com/laws/florida-rent-control-laws#:~:text=No%2C there are no Florida,doing so unless absolutely necessary.) - I found a statement saying that Orlando does have rent control and another one that the state does not permit it. So, I included both links
• Jacksonville - No
• Las Vegas - No

The above is a good start for comparing locations.

Selecting a Good Investment Location

On selecting an investment location - I recommend against following anyone's opinion on where to invest. Instead, do your own research. The process for selecting a positive cash flow city is straightforward.

Start with cities with a population over 1 million (Wikipedia) and then illuminate properties that fail any of the following additional criteria

• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Inflation compensating - Every time you go to the store, the same basket of goods costs more and more dollars. In order to have the additional dollars needed to pay inflated prices, rents must rise faster than inflation. Therefore, a critical location selection metric is that rents and prices are rising faster than inflation. Rents tend to lag behind prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent costs are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree
• Low disaster risk - When a tornado or other natural disaster strikes a city, it doesn't just obliterate individual properties. The entire community, including jobs, shopping, and retail, is destroyed. Your tenants won't wait for your property to be rebuilt in a year or two; they'll move immediately to a location where they can work and live today. Even if your insurance company rebuilds your property, there may be no one to rent it. Everyone in the community will have resettled in other locations, and there's no reason for employers, retail establishments, or people to move back. Locations hit by natural disasters may take many years or never recover. However, your mortgage, taxes, insurance, maintenance, and other expenses will continue without interruption. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area. Choose a location with low-cost homeowners insurance because they have the lowest risk of natural disasters. Insurance - ValuePenguin
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control.

At this point, you will have a small number of potential cities. The next step is to find a local investment team. Why is working with a local investment team critical?

Everything you learn from seminars, podcasts, books, and websites is general information. You will purchase a specific property in a specific location that is subject to specific local rental regulations. The only source of the hyperlocal information you need is a local investment team that has years of experience working with investors. Also, working with a local investment team costs no more than working with any other realtor so there is no disadvantage and every advantage to working with a local investment team.

Andrew, I hope this helps. If you have other questions, please DM me or post here and I will respond.

Travis Biziorek · Answer

Andrew, Detroit should 100% be on this list.

I own 12-doors there and live in California. It's a fantastic market if you know what you're doing. Happy to chat more but thought I'd at least put it on your radar.

Joe Hammel · Answer

@Andrew Potievsky

Another Vote for the Metro Detroit Area.

I make $100k/year off 20 doors here. That's not to brag, but when having the discussion about ROI and Cash flow, one can't deny this market knocks it out of the park if done correctly. I can share a snapshot of the breakdown, if someone wants to see the makeup of my portfolio.

Couple hundred bucks a door cash flow, double digit ROI, and yes the prices appreciate and you build equity.

Afters lots of research and experience, we've nailed down the primary makeup of the highest ROI/cash flow potential combined with the highest probability to succeed:

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: 1%-1.4% rule deals

ROI: 10-14%

Cash flow: $250-$350/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-15% (has been double digit for a decade)

Location: C+, B-

These numbers are based on the “sweet spot” in Metro Detroit. These are largely in the suburbs and some markets in the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.

The bad reputation of “Detroit” comes from OOS investors wanting $20,000, D class properties. We don’t buy those lol.

Account Closed · Answer

Hey Andrew, looking directly at cash flow, the midwest is a great region for LTRs. Just search of "best cities for cash flow" and you'll see the results. Cleveland is a great area to invest for cash flow, and though I'm not familiar with it, I often hear about how good Detroit is for cash flow. Here in Columbus, we have a good mix of cashflow and appreciation, with population and job growth driving the latter. Even so, we still have a lot of affordable price points that make the 1% rule feasible here. To discover your market, find cities with a strong ratio of price:rent (think 1% rule) as well as a strong demand for LTRs.

Nicholas L. · Answer

@Andrew Potievsky

don't worry about the "best" city in the entire US - instead, find a market that you can drive to where you can be hands-on. go 1 or 2 or 3 hours away if you have to - that gives you access to markets in PA, CT, NJ. yes, they won't be the lowest cost markets in the whole US but they will be lower than NYC proper.

go to REIA meetings, meet agents, look at properties. put some time and work in. don't buy something random thousands of miles away. it's the toughest it's ever been even in the lower cost markets to generate high cash flow.

Anthony L Amos Jr · Answer

Invest in the wonderful town of Columbus, OH. Home to The Ohio State University with nearly 60,000 students, 5 fortune 500 companies, over +25% population change since 2000, 2016 smart city challenge award winner gaining 50 million dollars in funding from the government ( https://www.columbus.gov/smartcity/), Intel is spending 20 Billion dollars to build two semiconductor plants, and many many more great things presently and coming in the future. Needless to say Columbus will remain a strong real estate market for the foreseeable future.

Najma Osman · Answer

Hi @Andrew Potievsky,

I invest locally in Columbus, Ohio and I think we have a great market of appreciation and cashflow. It's a great time to buy now as many new jobs are being created from large expansions by companies such as Intel, Honda, Amazon, Nationwide Children's hospital and Wexner Medical Center. It is also home to Ohio State which has 60,000+ students. Cleveland is another great option here as it is consistently known as a top market for cash flow with opportunities to get in at a low PP.

Matthew Irish-Jones · Answer

The simple answer is: Whatever city the agent giving you advice in lives is the best city to invest.

The complex answer is: Its subjective based on your goals, amount of Capital and strategy. Most investors are squeezed out of the best places to invest. That's why they are the best places to invest.

I live in Buffalo NY own almost 70 rentals, manage 700 and believe my city is indeed the best city to invest. We have a low barrier to entry, solid cash on cash returns, population growth (first time in 70 years) and lots of fresh water.

Bjorn Ahlblad · Answer

Try a search on the site this has come up frequently.

Joe Hammel · Answer

@Dave Elim

Hi Dave, I’m not counting appreciation. The numbers provided are what you can realistically find right now and analyzed with PM. My personal profile is a few years matured and self managed so my personal cash flow is closer to $500/door.

Glad you hear you found something that’s working!

Which cities have the most promise for long-term rentals (cash flow)?

Which cities have the most promise for long-term rentals (cash flow)?

Most Popular Reply

Operating Costs

Rent Control

Selecting a Good Investment Location

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Operating Costs

Rent Control

Selecting a Good Investment Location