Whether you’re looking to become an investment property owner, or are looking to buy additional investment properties, large cities can offer a number of benefits. From high-rises to single-family homes, large cities provide more diverse housing options as well as ample opportunities to find tenants, but knowing where and when to invest is a key factor. In order to determine the best large cities to buy an investment rental property, we recently analyzed home values and median rent as well as other metrics in cities around the country.
The large cities on our list all have a population size of 300,000 residents or more and were ranked based on five metrics: median home value, year-over-year home value growth, 10-year population growth, annual property tax and annual return.
On average, these cities have experienced a 10% growth in population since 2010. They also offer an average annual yield of $5,451, which represents potential profit after mortgage, property taxes and homeowner’s insurance. We also displayed home value to gross rent ratio, which represents the number of rent payments it would take to pay for a home in each city based on median rent and median home value if a home were financed based on a 30-year mortgage with a 4% fixed interest rate.
Eyes on the South and West
More than half of the cities on our list are located in either the South or the West, making both regions areas that investment property owners will want to keep an eye on. Texas makes the most appearances on our list with four cities: Dallas, Fort Worth, San Antonio and Corpus Christi. Florida also has a strong presence with three cities: Tampa, Miami and Jacksonville.
1. Cincinnati
At nearly $8,000, Cincinnati offers the highest potential annual return on our list, if an investor financed a home at the city’s median home value of $161,508. It also provides the best home value to gross rent ratio at 102. This number represents the number of rent payments needed to pay off a home. These factors along with a 7.1% year-over-year home value growth propelled Cincinnati as the best large city to buy an investment property.
2. Colorado Springs
Head West to find the No. 2 city on our list. Although the median home value is higher ($302,900), Colorado Springs offers low annual property taxes of $1,484, which is nearly $1,000 less per year than the overall average on our list of 30 cities ($2,363). This city has also seen a population growth of 11% within the last ten years. Two other Colorado cities, Aurora and Denver, also made it onto our list at No. 6 and No. 28, respectively.
3. Tampa
Looking to invest in property and plenty of sunshine? With a potential annual return of $6,459, Tampa is your best bet. The city has also been booming in terms of both population and job growth. In fact, the Tampa Bay metro area added more than 26,000 jobs over the last year, according to the Florida Department of Economic Opportunity.
4. Atlanta
With a population teetering on half a million people, Atlanta offers the best of both worlds in terms of “big city” feel and big potential for investors. The city has experienced a 14% population growth since 2010 and offers potential annual returns of $6,428 making it No. 4 on our list of best large cities to buy an investment property.
5. New Orleans
If you want to be close to the action (and the party), New Orleans is calling your name. The Big Easy offers a reasonable median home value of $228,780, low annual property taxes of $1,828, a growing population of more than 10% since 2010 and potential annual returns of more than $6,000.
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Methodology
To determine the best large cities to buy an investment property, we compared cities with a population of 300,000 or more. From there, we considered median home value, year-over-year home value growth, 10-year population growth, annual property tax and annual return for each city. Data for 10-year population growth was collected from the U.S. Census Bureau. Median housing cost, median rent and year-over-year home value growth data was collected from Zillow. Each factor was graded on a 100-point scale and then weighted to determine a final ranking.
We determined an overall weighted average based on the following:
Median Home Value: Median home value in each city. (20 points)
Home Value Growth: Year-over-year home value growth (as of December 2019, not displayed in the above graphic). (20 points)
Annual Property Tax: Annual property tax amount within each city based on the median home value. (20 points)
Population Growth: Each city’s 10-year population growth. (20 points)
Annual Return: Represents the annual profit an investor could potentially make if a home was financed based on a 30-year mortgage with a 4% fixed interest rate. This potential profit includes factoring in home insurance and property taxes, but does not include factors such as closing costs, maintenance or utilities. (20 points)
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