Best city to invest for Rental property investing

23 Replies

Hello everyone,

My name is Nahom and I just moved to USA. I have been learning about real estate on BP and read several books. I have enough cash to buy quadraplex using FHA loan.

Now my question is, which state or city is best to invest for rental income?

Any suggestions would be highly appreciated.

Thank you.

There is no best city, and it depends on your goals, if you are looking for the max cash flow look towards Midwest cities like Cleveland, Indianapolis and Kansas City, as well as Baltimore.

Hi Aaron. I'm new to the forums as well. I'm beginning to look rental income as well, but being from Southern California there is not much in my price range. Actually, Riverside also. Would you mind explaining what makes those cities better for max cash flow than others? I have been skeptical of which cities I should invest in with little to no knowledge of the areas so any info would be greatly appreciated!

@Scott Gilbert part of what makes those cities mass cash flow is the high price to rent ratios, and a good portion of this means that it is unlikely that rents or home prices will appreciate very much.  In CA the opposite is true because price to rent ratios are low because people expect both rents and prices to appreciate.  There is a tradeoff and there are many cities in the middle of the spectrum as well

@Aaron K. okay I think I understand. So although you will be receiving a high cash flow, if you were to buy in areas like that you can expect to not make any significant gains in equity on your property? If that's the case would you recommend finding cities that are in the middle of that spectrum?

@Scott Gilbert it really depends on what the individual investor wants, it is like the difference between investing in AT&T or Amazon, both can work so it comes down to personal preference.  Do you want monthly cash flow? Or the potential for higher long term gains?

@Aaron K. I hear you. I'm still pretty young so I'd say my goal is to probably look for the higher long term gains. But of course I would like to cash flow until it comes time to unload the property. That just doesn't seem possible here right now as I'm sure you know so I have been trying to research cities it might be. I appreciate your help.

For cash flow, I think stable cities in the south and midwest are the best. But there's also a major advantage to investing wherever you're at. Investing out-of-state is a risky affair to say the least.

I agree with @Aaron K. , there is only the best market for you based on your goals and your life situation. There is no BEST move or BEST city, there is only best for you right now based on your goals and situation. Almost any market you look at, people are making money investing in RE, with all kinds of different strategies and asset classes. I do that if you can buy where you WANT to live then that's a great way to get started. I'm in a very expensive market and I don't want to commute so I invest out of state. Now that I do that investing in my local market seems even more appealing. I will still keep with my out of state market but a 900k triplex in San Diego doesn't seem so bad now that I understand the process of rehabbing in a lower-cost market. You will change, your goals will change, so just do what you can now in your current situation. 

There isn't one best city to invest in but the general consensus is the Midwest and South cities have better rent-to-value. Of course, the trade off is you probably won't see the natural appreciation of coastal cities in these markets.

My advice is find a city and get to know the neighborhoods, reach out to investor friendly agents and start building a team on the ground.

I live in and like Baltimore City for rentals if you know how to manage them, basic 3 bd, 1 bth townhouse you can be all in for 85k-95k rehabbed, all new mechanicals, get 1300-1400 a month, taxes are 1000-1800 a year on average, good cash flow.

Originally posted by @Nahom Ekubit:

Hello everyone,

My name is Nahom and I just moved to USA. I have been learning about real estate on BP and read several books. I have enough cash to buy quadraplex using FHA loan.

Now my question is, which state or city is best to invest for rental income?

Any suggestions would be highly appreciated.

Thank you.

 The Midwest is a great place to invest right now. Markets like Cleveland are perfect for buy and holds.

I think it's important to determine whether you want appreciation OR cash flow. To try to get both, you'll get mediocre results on both sides of that spectrum.

In our buy/hold game, cash flow is KING.  It can be boiled down to a formula.  We'd much rather have predictable strong regular returns, then the promise of something later. The appreciation game is much more risky, and is only meaningful upon sale or refinance.  

If there were a "best" city, investors would flock there, driving up prices, lowering returns, making it 'not' the best city anymore.

Every city, and every sub market in every city, and every property in every submarket in every city, tends to be priced based on the bids/ask of the market all making a decision on the risks and appreciation upsides.

Which is why you can buy something like a NNN jack in the box. You'd think no matter where you bought it would be the same return. The risk of payment is cover by Jack in the box, which isn't (likley) going anywhere. Yet various locations have drastically different CAPs.

I saw a Starbucks sell in Pacific Beach (near my home in SD) for like a 2 CAP. I've seen them sell for a 6.

tl;dr, there is no 'best' area, only what fits a given investors criteria.  For me, personally, that's Houston TX (even though I live in SD)

@Nahom Ekubit - I think everyone has given you great advice on appreciation vs cash flow. I have properties here in Seattle (around Tacoma area) and I am looking at out of state options because it's very difficult to buy at the right price and have cash flow here. What I have learned is that your team (Property Manager, Contractor, Realtor) is the most important factor as I have relied on all of them at various points over the years. Make sure to keep that in mind when making your decision to purchase either Turnkey or BRRRR properties. Happy hunting.

@Ian Barnes Thanks for your comments on the Baltimore City market. You mentioned all in costs of 85k-95k. How about properties where the all in cost is 20k-40k? Are such properties also considered good cash flow opportunities? Also are the rents similar to the higher cost properties you mentioned? 

@Obinna I. If you find a property in Baltimore for that price already rehabbed and ready to go and not in a distressed aka war zone area, let me know because that’s what you’re going to get.

The question you need to ask is where is the best team that I can invest with. The midwest markets are interchangeable for the most part and if you have a great team on the ground you can make money in an average market. On the flip side, if you have a average team, you'll break even in a great market. 

If your buying turnkey your paying retail and your investing solely for cash flow. Appreciation is fairly flatline, of course we've seen some nice appreciation lately, but speaking historically. Don't factor it in to your numbers when investing out of state, plan for cash flow and if you see appreciation you've got the icing on the cake. BRRRR is great, but there are several ways to get taken advantage of and a couple potential hurdles to be aware of. You can also invest in notes and not own properties at all.

Plenty of ways to make money in real estate, your goals and risk tolerance will dictate which route you choose. Reach out anytime, happy to provide more detail in what I mentioned above.

@Obinna I. All in at $20-40k is not very much and typically you are going to be in a weak area and get low rents. Yes you can make it work but it is tough. I have sold properties in that range that were pretty decent so I know reasonable properties can be bought in today's market.  

The biggest issue is lead paint. You can make these properties "lead safe" by MD standards as part of your all in cost. However that is not enough to protect you from a lead paint lawsuit. To make the property lead free is  more expensive in the older cheaper areas. 

The next point is that you will not get as much rent. If you go section 8, you can get very good rents even in the poorer areas. To attract a good section 8 tenant, you need to renovate to a higher ie. more expensive, standard. While if you are all in at $30-40k and you rent for $600 to 800 a  month that sounds great but 1 major repair can eat up most of a years profits.  A new roof, new furnace or digging a new drain line to the street can all be in the thousands of dollars.

@Obinna I. If the all in cost for a property is 20k-40k, your in the worst part of the city, or someone scammed you by selling you the house, or your about to pay a lot more than that.  With the new rental city inspections, you pretty much have to bring the6 house up to code, and most of the low end stuff is no where near code.  Lower end stuff rents for 700-1000

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