rate the following rental markets

21 Replies

My objective: to purchase a SFR for rental / cash flow. I can afford a home between $150K - $300K. Living in Southern California, a home in Riverside county or Temecular / Murrieta would be around $250K and above, and not very good looking either. I see beautiful homes on Zillow in Charlotte, Dallas and Houston for $150K that's better than what you would get for $300K in Riverside, etc.

SO my questions to people, rate the following markets which would be better suited for a cash flow rental property, 1 belong lowest and 10 being highest.

City, State    |    ZipCode  | Class B,C,D |  Job Growth (1-10)  |  Pop Growth (1-10) | Vacancy rating (1-10)

Riverside, Ca

Temecula, Murrieta CA

Dallas, TX

Houston, TX

Charlotte, NC

Memphis, TN

Thanks and let me hear your feedback on which markets above would make the best rent and hold strategy.

David To


According to USA Today...below are the top 10 rental real estate markets:

(They looked at annual gross rental yields from RealtyTrac as their basis)

10. Hernando County, Florida

  • Annual gross rental yield: 17.29%
  • Vacancy Rate: 5.1%
  • 9. Pasco County, Florida

  • Annual gross rental yield: 17.30%
  • Vacancy Rate: 8.9%
  • 8. Columbia County, Florida

  • Annual gross rental yield: 18.42%
  • Vacancy Rate: 11.3%
  • 7. Wayne County, Michigan

  • Annual gross rental yield: 19.88%
  • Vacancy Rate: 8.9%
  • 6. Spalding County, Georgia

  • Annual gross rental yield: 20.35%
  • Vacancy Rate: 12.3%
  • 5. Putnam County, Florida

  • Annual gross rental yield: 22.63%
  • Vacancy Rate: 6.3%
  • 4. Howard County, Indiana

  • Annual gross rental yield: 24%
  • Vacancy Rate: 6.6%
  • 3. Duplin County, North Carolina

  • Annual gross rental yield: 24.4%
  • Vacancy Rate: 8.8%
  • 2. Clayton County, Georgia

  • Annual gross rental yield: 26.88%
  • Vacancy Rate: 16.9%
  • 1. Edgecombe County, North Carolina

  • Annual gross rental yield: 41.57%
  • Vacancy Rate: 11.1%
  • 1. Dallas

    2. Houston (although those are about tied for spots 1 and 2)

    3. Memphis

    4. Charlotte (those two are tied for spots 3 and 4)

    I wouldn't even bother with the CA properties personally. Dallas and Houston are awesome, but there will be a hit to the cash flow due to high TX property taxes and insurance. Memphis is still good but I think there is better out there. Charlotte is great but really strapped for inventory so finding something there will be harder.

    @David To  Make sure you are comparing apples to apples, and do your homework. What is the criteria used to make the determinations shown above? What are the local economies, and job market? What are the areas like? Where EXACTLY in those cities listed are they talking about? Dallas is a huge area, and I have to believe there are good and bad neighborhoods etc. 

    I'm just saying that there's a lot of factors that go into real estate markets. Buying something smaller in California (a condo for a vacation rental, or SFR) though may not cash flow as well as another location may actually prove more profitable in the long run, and vice versa.

    @David To  

    Dallas has the same inventory problems Charlotte does, possibly worse in the highly desirable areas.  The areas of tops schools in the DFW area - not the areas of highest property value mind you - have less than 45 days of inventory in median price points, some areas have less than 30 days in that price point.  Even upper price points are selling in well under 60 days.

    Additionally, much of Dallas is in an inverted rent:value ratio, meaning your market rents haven't caught up to property values.  That said, there are areas of the DFW Metroplex that do cash flow.  That includes a couple of areas of A rated schools in B neighborhoods.  Most of the other cash flow areas are probably C neighborhoods...blue collar, lower income, but mostly families.  Not scary, but not where I personally would want to live.  I would live there, but I have choices.

    Dallas has a serious leg up on Charlotte in terms of the job market and economy.  I was in Charlotte, when banking collapsed at the end of 2008.  I worked in banking.  Their economy, while back to being vibrant, is still overly dependent on financial services.  Dallas has a very dynamic and diversified economy.  Dallas leads ALL major markets for job creation over the last 2 years.  According to the numbers just released, Texas has out produced New York and California combined for job creation in 2014.  State Farm is moving it's HQ to Richardson and will begin occupying that campus in Nov.  Toyota is relocating a major manufacturing facility from CA to Frisco...etc.

    There are definitely areas in DFW for buy & hold, but you have to be careful and know where to look.

    HI Hattie and everyone, thanks for the info and response.

    1) Although Escondido / Oceanside / San Marcos in CA, houses can also be found for around $300K, they are older and smaller than something you could get in Charlotte or Dallas for $150K. So I could get two homes in Dallas / Houston / Charlotte for the price of one home in CA.

    2) Problem with Dallas / Houston I suppose is the high property tax rate, which Charlotte doesn't have.

    However, that being said, I would have to seriously do the math to see if I can positive cash flow in Dallas / Houston and still be worth the effort or look at Charlotte as an option since with a lower property tax, will cash flow better.

    By the way Hattie, do you know approximate home prices and zip codes that you consider to be Class B neighborhoods in Dallas? Like 3  bedroom, 2 baths (1500 square foot).

    David To

    True that David. This one is 1990. Now it rents for 2k and could be worth 400k soon for the math part:)

    Originally posted by @David To :

    SO my questions to people, rate the following markets which would be better suited for a cash flow rental property,

    Riverside, Ca

    Thanks and let me hear your feedback on which markets above would make the best rent and hold strategy.

    David To

     @David To  Can you clarify your question?  Are you looking for cash flow TODAY or just over your holding time.  If you look at California's rent growth and appreciation compared to most flyover states the profits made in CA will blow those areas away!  But if you'd lose the CA property to the bank before the increased rents catch up then your cash flow needs you could always partner with someone to stay in the more profitable CA market.

    Notice: 4 our of 10 of the "top 10" rental markets are in Florida. The top three states I would first consider for investing are Florida, Texas, and California...and in that order. The Austin market is really hot..but so are the prices. There are so many factors that go into evaluating a property and so many different scenarios and objectives that one market may not fit one investor well but be perfect for another. One last thing to consider is being an absentee landlord. Although I read lots of posts here with absentee owners I personally have not been comfortable making that move.

    HI John, thanks for the info. I'm not very concerned about being an absentee owner because I will find a great property manager to do the work. I have a rental home in San Diego and it's being managed by a property manager just fine. 

    I'm looking into buy and hold and just rent out as long as possible as a means of passive income so not looking to flip and sell. I haven't considered Florida but thanks for throwing it out (i'll do some research on Florida). I'll look at Austin as well (forgot about this city). Only downfall with Texas is high property tax. 

    California, I'm living in it already and prices are 2-3 times higher than Texas/North Carolina so that's why I'm considering out of state as an option because I can get two homes instead of one which means higher rate of return as well. 

    Originally posted by @David To :

    California, I'm living in it already and prices are 2-3 times higher than Texas/North Carolina so that's why I'm considering out of state as an option because I can get two homes instead of one which means higher rate of return as well. 

    I'd like to see your math on this.  Two homes means two roofs, two hot water heaters, etc.  Then if you consider half the appreciation, half the rent growth,  etc.  Do some basic calculations of rent per sq. ft., expenses per sq. ft. and you'll probably see that the smaller properties in CA do much better that the other areas.  I'm not saying that you can't do well in Fl or Texas but that you should do through evaluations to determine the profitability, not the immediate cash flow.

    @STEPHEN YUAN    those list that come out by the experts are flawed in my mind.. two of the top ten counties  Clayton in Georgia and Wayne in MI.. are really really tough markets for landlords... Clayton got its school system decertified for poor performance so anyone who cares about schools for their kids will move to Henry county or another one near it.

    And Wayne county is well its Detroit and of course there are pockets but there are also so much that is not good.. 

    Its these kind of survey's that the investors or promoters hang there hat on and its not reality in the real world Kind of like Zillow is for values  :)

    @David To  

    "B" neighborhoods...off the top of my head 75081.  Blue collar, 2nd tier schools in a A+ district, very desirable.  Super close to tons of employment opportunities, including high-tech, and close to the DART light rail.

    Dallas - A.  Would be A+ if taxes were lower (and apparently insurance, which I didn't know).  Great economy.  Great growth.  Good housing values.  It's huge which may turn off some investors, but should be top 3 in any reasonable investor list.

    Charlotte B+.  Where I personally invest.  A small, clean city.  Very green.  Large lots.  Good houses.  Good rent/value ratios.  It was hit pretty hard in the downturn (their economy is heavily financial) but I love this market moving forward.  Among the more underrated cities for rentals IMO.  Inventory is a little tight though.

    Memphis, TN.  B-.  A very popular city for investors, but it has some big red flags for me. Most of the investor-friendly houses are old, and their economy has shown signs of shrinking.  These aren't show stoppers, but if you have an interest in Memphis, I'd consider looking in the NE as well.  The one big draw to Memphis is Memphis Invest - maybe the nation's premier turnkey provider.

    Houston - B-.  People who know more than me will disagree, but I'm not a fan of Houston.  Their economy and reputation rank them much lower than some of the others.  It can cash flow great and has had great growth - but I'm smidge uneady about the city.

    Anything in CA - No thanks.  My big CA concern is price.  My small concern is tenant-friendly laws.

    Thanks for the info everyone. I believe I'm leaning towards Dallas and Charlotte (although living in Southern California, this isn't out of the question either) based on all the responses. Great information provided. Glad I posted this since I can get so much information / suggestion from people in all places with different opinions, etc.

    @David To  - Quick reminder from someone who deals with passive investors.  Your market choice is obviously very important and on the surface you have given your reasoning for naming the markets you did and for leaning how you are leaning.  But the market and the market data is a bit superficial to your decision making.  You will lose every time regardless of market if you are not careful with your team and partner selection.  Great markets and great properties - and more importantly your ACTUAL return (not the paper return) - get killed by poor renovations, poor marketing, poor management.  

    So you have to pick markets where you can make your money go further and I think you can do that in a lot of different markets including California.  The entire state is not on fire or priced away from investors.  No matter which market you choose, just be methodical and patient vetting who you are going to work with.  The team will be the difference no matter how you put them together (by yourself or buying from a company with all the pieces) in your success holding property out of area.

    Some more questions; can you recommend some real estate investors and property manager companies in the following markets:

    1) Charlotte

    2) Dallas


    BY real estate investors, I meant real estate agents that cater to Investors. And great property managers.

    Originally posted by @David To :

    By the way Hattie, do you know approximate home prices and zip codes that you consider to be Class B neighborhoods in Dallas? Like 3  bedroom, 2 baths (1500 square foot).

    David this is Texas.  You will be hard pressed to find a 1500 sqft house in a B neighborhood.  :)  Your looking more at 2000-2200 sqft in most cases.  If you are playing the family market listen to Hattie about the schools.  Not only the towns or even school districts (these are independent in Texas)  but the actual schools especially high school and junior highs.  In a lot of places two houses fifty feet from each other will send their kids to different high schools.  One may be above average and the other look like a gang and prostitute hangout.  I'm looking at you Arlington! 

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