Saving up $50,000 to invest in real estate is no easy feat. It can take years of careful budgeting and responsible spending to save up that amount of cash. So, if you’ve saved up $50,000 for investing, congratulations! That’s impressive. At BPInsights, we’d love to help you zero in on some of the top markets in the country where you can invest that money and make a great return.

What $50,000 Gets You

First, you need your down payment. For this analysis, I’m assuming 20% down since that’s pretty standard. Of course, this varies by the individual investor. For example, if you live in one of these markets and want to house hack, you could get an FHA or other type of loan for as little as 3.5% down. Conversely, many banks require investors to put more than 20% down on non-primary residences. I have a few investment properties that required 25% down.

Second, you need to pay closing costs. For this, I am going to use a flat rate of $5,000. Why? Because that is about average. If you’re crafty, you can take advantage of bank promotions or deals our partners offer BiggerPockets members on the BiggerPockets loans page to get money back on your closing costs.

Lastly, you need reserves! You cannot spend every dollar you have in savings on purchasing your property. Even if the place is in great shape, you will ultimately need to make repairs, vacancies will happen, and a million other random things might come up that require cash. For most properties, I would recommend at least a $3,000 buffer to get you started. But if you’re investing in a market with high vacancy, or if you’re buying more of a “fixer-upper,” you will want larger cash reserves—think $5,000-10,000—to make sure you can cover expenses and make improvement to the property that will increase what you can charge for rent. Again, I’m going to average this out to $5,000 for this analysis.

So, if we need $5,000 for closing costs and $5,000 for cash reserves, that leaves us with $40,000 for our down payment. Because we’re assuming a 20% down payment, we can look for properties that fall anywhere under $200,000 ($40,000/20% = $200,000).

Narrowing Down the Markets

When looking for markets for investment, I like to think in terms of a funnel. You start with broad metrics that help you understand the macro trends for that market, then refine your analysis to hone in on a neighborhood, and then a specific property. For example, I really like to use the following three metrics for my broad analysis:

Rent-to-Price Ratio (RTP)
Rent Growth
Property Appreciation

Using BPInsights data, I took a look at every market in the U.S. according to these factors and narrowed them down—with the limitation that the median home price could not be more than $200,000, since we’re looking for places to invest with $50,000.

Generally, I am looking for places that show strong rental and property appreciation growth. In this case, I’m analyzing both year-over-year (YoY) and the 3-year compound annual growth rate (CAGR). I am also looking for an RTP of above 0.5% (and ideally near 1%).

Using these criteria, I narrowed in on five markets

High Point, NC
Tuscaloosa, AL
Trenton, NJ
Palm Bay, FL
Joliet, IL

Please note that I only selected markets where there is statistically significant data to conduct this type of analysis. Markets where there is only a handful of transactions or rental listings in a given month provide unreliable data and therefore are not appropriate for this type of analysis.

As you can see from this analysis, we have five markets here that are very interesting! In all five markets, we not only see an RTP above 0.5%, but we also see that metric growing. Joliet, IL has seen its RTP grow nearly 33% since 2017, which is really encouraging—but that is an outlier in this type of data. Seeing RTP grow at all is a very good sign, and we see that trend in all five of these markets.

Next we look at YoY rent, which also looks excellent for these markets. Tuscaloosa clearly leads the way with 47% YoY growth—an impressive trajectory! But rents can be seasonal and may be subject to fluctuations year-to-year, which is why we also should be looking at rent CAGR as well. That metric examines the average increase in rent from 2017 to 2020. To me, that column is likely the most encouraging of all for these markets. All have a CAGR of nearly 10, which is incredible! If you’re averaging about 10% rent growth per year, you’re going to be a very happy investor.

Lastly, price appreciation looks good for all of these markets. Year-over-year we see a small dip for Tuscaloosa—and a massive increase in Trenton. Again, to smooth out the data over several years, we look at CAGR, which shows strong performance for all markets, particularly Palm Bay, FL, averaging over 7% appreciation since 2017.

Hopefully you can see why I selected these five markets for further analysis: They all have strong, growing RTPs, strong rent growth, and strong appreciation. Those numbers should get any investor curious. And if you are, keep reading because we’ll now look at each market and how these high-level numbers translate to actual cash flow.

Deep Dive

For our deep dive into each market, I am going to add a few new metrics, as well as a cash flow analysis. The broad metrics here are going to be:

Vacancy Rate: What percentage of rental property are unoccupied?
Rent-to-Income Ratio (RTI): What percentage of income is a renter paying towards rent?
Population Growth: Are more people moving in or out of the city?

Just like with our other metrics (RTP, rent CAGR, property CAGR), none of these metrics is the “best” or tells you where to invest. They are pieces of information for you to use in your own analysis. And with that, let’s jump into the five markets to explore right now, assuming you have $50,000 to invest.

High Point, North Carolina

High Point offers an affordable entry point for investors, with a median sales price of $130,000 (meaning a 20% down payment would be only $26,000), well under the $40,000 budget for this analysis. Property prices have appreciated in High Point 2% over the last year and have averaged an impressive 5% since 2017.

Rents also look very strong for High Point, with a median rental price of $968 per month. Rents have growth 11% since last year, and have averaged 9% per year since 2017, which is excellent.

The median income in High Point is $45,400. When we calculate the RTI (annual rent/median income), we get 26%, which is great. Personal finance experts recommend renters spend no more than 30% of their income on rents, so High Point’s RTI means that rent prices are sustainable.

One of the things I like most about High Point is its strong population growth—8% since 2010. This is simple supply and demand. When there are more people moving to a city, demand increases, which typically raises prices (unless new supply, i.e. new housing units, outpaces demand, i.e. people who need housing).

Next, I found the average property taxes and insurance costs, and estimated some other expenses to figure out what the estimated cash-on-cash (CoC) return would be for High Point, and I got around 7%, the second highest on our list. In that analysis, High Point is helped by relatively low taxes and an about-average insurance rate—and is hurt slightly by an above-average vacancy rate (9%). See the full data table at the bottom of this post.

Tuscaloosa, Alabama

Tuscaloosa has the highest median sales price on this list at $173,000, which is still well under the budget of $200,000 for this search. Sales prices have dipped by 3% in the last year, but even still, Tuscaloosa boasts a property CAGR of 4% since 2017, which is very good.

Rental growth is where Tuscaloosa really shines. Since last year, the city has shown 47% growth in the listing price of rentals, which is probably somewhat anomalous. However, that huge number is backed up by an 11% rent CAGR since 2017, which implies the gains are real. The rental market is also supported by a 6% vacancy rate, the lowest on our list.

The 34% RTI for Tuscaloosa is a bit above what I would like to see. That means that rents are a bit high for the area, and we may see rent growth level off over the next few years, particularly if median income doesn’t grow. It’s high, but not crazy.

Of all the cities on this list, Tuscaloosa has the largest population growth since 2010—12%. That is very encouraging and likely what has fueled the strong rent and property appreciation over the last several years.

In terms of cash flow, Tuscaloosa comes in at a strong 6.3%, aided greatly by the low property taxes (only $656 annually!). That is slightly offset, however, by above-average insurance costs (about $1,650) due to Alabama’s location in hurricane country.

Trenton, New Jersey

Trenton has seen huge property appreciation over the last several years, with a 7% CAGR and 31% YoY growth. The entry point to the market is a median price of $170,000—easily attainable for anyone with $50,000 to invest.

The median rent in Trenton is about $1,550 and has grown an average of 9% since 2017. That rate might be slowing down, however, with a YoY gain of just 6%—the smallest on our list. But keep that in perspective: A 6% rental increase is still really high! In fact, Trenton boasts the best RTP of any market on this list at 0.91% in 2020.

The next two stats give me pause about Trenton. First, the RTI is 53%, which is just not sustainable. You cannot have renters paying more than half of their income towards rent. That is not a good situation for anyone. It seems that rents are growing faster than the median income, which will need to change if investors expect rents to remain at current levels.

Secondly, Trenton’s population has shrunk by 2% since 2010. The trend isn’t dramatic, but it’s not a good sign for investors.

Trenton has very low property insurance rates (under $800) but is hurt by high taxes ($4,440). Nevertheless, Trenton has a strong 6.3% cash-on-cash return estimated for the “average” home.

Palm Bay, Florida

Palm Bay shows strength across the board in terms of our key metrics. The median property price is $166,000, and it has seen 7% gains YoY, with averaged 7% gains since 2017. That is excellent.

Rents are also moving up, with an 11% YoY gain and 8% CAGR. That is the lowest CAGR on our list, but absolutely not something to be concerned about. This is still elite-level rental appreciation.

What I really like about Palm Bay is how stable the RTP is—it’s remained right around 0.82% for the last four years. To me, this signals a market that is growing sustainably and is well balanced. Add population growth of 11% since 2010, and it seems like Palm Bay’s breakout is for real.

The average income in Palm Bay is $47,600, which returns an RTI of 35%—the only knock on Palm Bay. That is a bit higher than what I would like to see, but not concerning enough to make investors fearful.

In terms of cash flow, Palm Bay tops out list with a great 8.8% average return. Insurance is just about average, as are property taxes, making Palm Bay my top pick of this entire list.

Joliet, Illinois

Joliet has seen the most modest property appreciation on our list—3% since last year and an average of 2% since 2017. But that shouldn’t be too concerning. Any appreciation is good, particularly when you consider the rate at which rents are growing in Joliet.

Rents average $1,435 in Joliet and are growing rapidly. Since last year, rents are up 20%, and have averaged 12% growth since 2017. That is the fastest rental appreciation on our list. The RTP in Joliet is a very strong 0.89% and has grown the most of any city on our list (up from 0.66% in 2017).

What I really like about Joliet is that the RTI is only 26%. This means that despite the rapid rental rate increase, rents are still affordable for tenants. That is what I love to see—a great situation for tenants and investors alike. To me, that means a profitable and stable investment for years to come.

Unfortunately, the population of Joliet has remained flat since 2010, which is likely why property appreciation is so modest here. Demand is simply not increasing fast enough.

In terms of cash flow, Joliet lands at the bottom of our list with a 4.7% cash-on-cash return predicted. While Joliet has strong fundamentals, the property taxes average over $4,300, which is very high. Insurance prices are low, but not enough to offset the high taxes. Still, Joliet’s strong rental growth could make this a good market to invest in, counting on continuing growth in rents.

Conclusion

Please remember that all this data is based on median and average numbers. So, when I say that Tuscaloosa is estimated to get a 6.3% cash-on-cash return, that does not mean all deals will net that result. In fact, it means that some deals will perform worse than 6.3%, and some will perform better than 6.3%.

It is your job as an investor to find the deals that outperform the average. My goal is to help you understand what a “good” deal is in these markets so you can go out and find them!

If you’re interested in any of these markets, you should learn everything you can about them. Figure out who the main employers are, how home prices have performed over the last 20 years, and much more. That will help you find a specific neighborhood—and eventually a specific property to invest in.

Below you can see the data table for each of these markets, as well as how I calculated cash flow for them. In the first column in parentheses, you can see where I pulled the data from. Hopefully this will be helpful as you analyze markets yourself.

If you’re looking to invest with $50,000, do any of these markets appeal to you? Are there others on your radar you want to share with the BPInsights community?

If so, please comment below and let us know what you’re thinking!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.