Best rental markets vs. population growth

13 Replies

Last night, I decided to put together a look at RealtyTrac's 'Best Rental' markets vs. population growth.

Using US Census data, I was able to see the 5 markets in the 'Best Return' list that have had the highest population growth since 2010. Here they are in order of adjusted return:

Atlanta-Sandy Springs-Marietta, GA (29.76%)
Kansas City (22.4%)
Pittsburgh (21.08%)
Tampa, St. Petersburg, Clearwater (21.02%)
Ithaca, NY (19.32%)

It's also nice to know that the list seems a bit more sane when you look at it this way. I would consider myself lucky to live in any of these 5 markets.

From Pittsburgh here... and YES... lots of exciting things happening here!

I had to give a vote to anyone who shines a positive light on the Tampa Bay area. Thanks @Trevor Ewen  !

Our market is awesome. From affordable housing to mansions it is difficult to be far from the water. The weather is typically beautiful except for those oh so cold 50 degree days in January and February. I think that Tampa Bay is the perfect place to live. 

Our rental market seems so vibrant as well. So much so that I am considering a foray in to property management to supplement my investing. 

Thanks again for the link Trevor. 

@Trevor Ewen This is an interesting post. I like how you compare the top markets for gross yield with the top markets for population growth. I just finished a comprehensive review of 40 markets looking at economic and demographic trends compared with rental returns. I think the RealtyTrac data overstates the gross returns in a lot of markets though. For instance, I don't know where in Detroit you can get $1,144 rent on a $44,900 property. Using their data, Atlanta would look like the best investment market which may have been true 3 years ago but certainly not the case today as measure by cash flow and gross yield. The interesting thing is that it leaves Indianapolis off the list entirely. I think Indy is one of the top markets when you evaluate economic strength with rental returns. People who aren't familiar with Indianapolis are always surprised at how strong the economy is there. Combine that with some of the lowest housing prices in the nation and you have a great investment opportunity. I looked at 16 economic factors in 40 markets. My favorites in no particular order are Indianapolis, Kansas City, Columbus, OH, Omaha, NB, Oklahoma City, Tulsa, OK, Des Moines, IA. Feel free to contact me if you'd like more details on my findings.

Thanks for the helpful links - both are great resources.

Trevor, I live in Astoria (technically your neighbor!) and I run my real estate investment company in the Midwest (KC, St. Louis, QC) - follow the money!

I feel like gross yield is not exactly the best measure since taxes could very much affect the ROI. Would have loved a net yield comparison but it would have probably been a little more challenging from a statistical standpoint.

One very important trend is the unemployment rate - I'd usually like to see a declining trend over the years, and ideally not too high compared to the national average.

Mike, I'm curious about your market analysis process - could you share more about your methodology? I agree with you and I have the same doubts about Detroit especially when it comes to being able to collect the rent. One of my properties is located about half hour away from Detroit in the suburb - rented for $900 bought at $50,000, so about 22% gross yield and 13% net yield.

@Mike D'Arrigo

To your point. All stats show a very small slice of a story. In no way do I intend to point a finger at the market of a lifetime. I was just attempting to mash up the disparate sets. I agree with Detroit. After the adjustment, it still ends up looking too good for what it really is (vacancy hell!). Atlanta (metro) actually doesn't look as good, but instead it's strictly related to Sandy Springs, which has seen much better population growth than the city (which has had a slight decline according to the census).

@Ken Siew

Pleasure to meet. You are definitely in my neighborhood. It's always a good sanity check to meet New Yorkers who are looking outside of our lovely tax heavy-low cap-rate 'utopia' here in the Northeast.

As I mentioned to Mike, there are so many factors un-considered. But it's a good way to put some markets in perspective.

Population growth is likely correlated with a lower unemployment rate, and I can't give you exact numbers on that, but it's a good start to filter the markets at hand. People move for jobs... I experienced that anecdotally growing up.

US Census is a treasure trove of info that I will go to before looking into any city. What they have is good, consistent, and applies to every town you can think of.

Originally posted by @Trevor Ewen:

Last night, I decided to put together a look at RealtyTrac's 'Best Rental' markets vs. population growth.

Using US Census data, I was able to see the 5 markets in the 'Best Return' list that have had the highest population growth since 2010. Here they are in order of adjusted return:

Atlanta-Sandy Springs-Marietta, GA (29.76%)
Kansas City (22.4%)
Pittsburgh (21.08%)
Tampa, St. Petersburg, Clearwater (21.02%)
Ithaca, NY (19.32%)

It's also nice to know that the list seems a bit more sane when you look at it this way. I would consider myself lucky to live in any of these 5 markets.

Hi Trevor,

I wouldn't get too caught up in stats and demographics of any particular area. They should always be considered before making any investment decisions but nothing more than that IMO.

For example, some of the areas of the Ohio cities we work in have had a "declining population" over the years but all of the locals will line up to inspect the properties in these certain areas as soon as the become rent ready or are available for sale.

Washington Local is one of them here in Toledo.

Thanks and have a great day.

@Engelo Rumora  

I am in complete agreement. All real estate is local. I would throw away all the stats to get a couple hours with one of your property managers.

This content is strictly to open us up to some of the demographic trends going on. While I won't say that Ohio is bad, the growth certainly suggests great things about Florida, and that is probably relevant for some investors.

Of course, there are a million vertical stats that we can use to slice up an area. If I was planning to invest in Tampa Bay, my next stop would be to look at home ownership rate in the area. As a New Yorker, I know enough people who head straight to Tampa with no plan to rent, whatsoever... an anecdotal explanation for the growth that is going on there.

I got another one coming, so hopefully Ohio investors won't start banning my posts :) 

Thanks

Originally posted by @Trevor Ewen:

@Engelo Rumora 

I am in complete agreement. All real estate is local. I would throw away all the stats to get a couple hours with one of your property managers.

This content is strictly to open us up to some of the demographic trends going on. While I won't say that Ohio is bad, the growth certainly suggests great things about Florida, and that is probably relevant for some investors.

Of course, there are a million vertical stats that we can use to slice up an area. If I was planning to invest in Tampa Bay, my next stop would be to look at home ownership rate in the area. As a New Yorker, I know enough people who head straight to Tampa with no plan to rent, whatsoever... an anecdotal explanation for the growth that is going on there.

I got another one coming, so hopefully Ohio investors won't start banning my posts :) 

Thanks

 I think you have the right mindset. Well done :)

Not many think the same way.

I have always been interested in Florida but believe that I have missed the boat of the dirt cheap prices.

Thanks and have a great day.

To @Engelo Rumora 's point, you need to be careful of looking at things on an MSA level. An MSA not only consists of several cities but also several counties in many cases. You can get a lot of disparate date when you look at it on that large of a level, but it is a good starting point. The problem is that some gems can get lost among bad.

Originally posted by @Mike D'Arrigo:

To @Engelo Rumora 's point, you need to be careful of looking at things on an MSA level. An MSA not only consists of several cities but also several counties in many cases. You can get a lot of disparate date when you look at it on that large of a level, but it is a good starting point. The problem is that some gems can get lost among bad.

 Thanks Mike :)

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