It’s a great time to be a landlord. Whether you own an entire multi-family building, or a single home, the real estate market is rewarding those that have invested in residential properties. If you’re looking to expand your assets, or trying to purchase your first investment property, keep reading to get ideas about where to buy. 

Types of properties

Landlords can make a very healthy return on their investments, but they must first be able to purchase the properties without jeopardizing their own finances. Since many people will not be able to buy because of low supply, high prices, and other financial costs, renting continues to be an attractive alternative. 

Renters desire single-family homes the most due to the space and privacy. Working from home, rising wages, and low supply in the housing market make this type of dwelling extremely popular. However, the economy is recovering gradually and is expected to continue improving into 2023. Life is returning to normal after the 2020 pandemic, which means people are more excited to be in urban areas. The demand for condo and apartment units has increased as well, opening up more possibilities for landlords who do not own single-family homes.

Landlords can invest in a variety of properties, including:     

• Duplexes
• Multifamily properties
• Mixed-use properties
• Single-family homes
• Condo units  

The type of property best suited for you will depend on many variables, including your budget, the types of tenants you want to rent to, your location, and the amount of free time you have.

Statistics to consider

The real estate market is incredibly dynamic; it changes all of the time. That means investors must continue to educate themselves and get the latest data available in order to make the best decisions for them and their tenants. If you’re a new landlord trying to get into the market, the statistics below may help you gain a better understanding of trends currently influencing the rental market:

• Growth in rental demand is largest for people making less than $25,000
• Young U.S. renters accounted for 4 million new renters over the past decade
• Roughly 1.6 million renters have incomes over $100,000
• 89% of the biggest U.S. cities saw rents grow at the beginning of 2022
• Smaller cities are seeing the biggest rent increases

There are a lot of young renters seeking housing, but more affluent people are renting, too. Big cities continue to see rents increase, but smaller cities are experiencing big rent surges as people move away from very densely populated areas in search of more space for less money. 

Top U.S. cities to be a landlord

Every city has great neighborhoods, great properties, and great tenants.

However, ManageCasa has compiled data from reputable real estate websites, and has come up with a list of top U.S. cities to purchase rental property in 2022.

What to look for when searching for a lucrative rental property

Just because your city isn’t listed as one of the top 5 cities to purchase a rental property in doesn’t mean it’s not lucrative. There are several other factors that can bolster profits for landlords.

State taxes

Landlords must pay tax on any profit made from renting out property. Rental income must be declared on taxes. However, landlords can also deduct expenses that they incur to maintain the property. The amount of tax a landlord must pay will vary depending on which state their property is in. Some states have much higher taxes than others, and that can impact a landlord’s bottom line.

Location

It is a bit cliché, but that doesn’t make it untrue. Location matters. When searching for a place to live, renters are going to prioritize location. You can renovate a unit or amenity, but you can’t do anything about location. If you own a multifamily unit that is close to transit, schools, grocery stores and shops, it’s going to drive value up, which means landlords can select tenants that are willing to pay more for rent.

Unemployment rates

When more people are employed, that means they’re relying less on social assistance programs. It’s also more likely that they can afford to pay rent on time. Check out the city’s past and current employment rates to see what the local economy is like.

Employment history is often used by landlords as a criterion for choosing a tenant because it gives the landlord proof that the prospect is receiving enough income to cover the cost of the rent.  

An expensive real estate market

Cities like San Jose, Boulder, Boston, and Seattle have very high rental rates. The cost of living is high in these cities, which means it’s appropriate for landlords to charge tenants more.

Though people would like to buy a home in places like California and South Florida, many won’t be able to afford one any time soon. That means there is a lot of demand for rentals. Of course, landlords will need a big budget to get into the real estate market in these cities and states. But if you can make a big investment, you’re very likely to get a big return.  

Cities where people are always in transit

University towns, seaside resorts, tech hubs, and cities with many government buildings are great places for landlords to target. That’s because there is always a demand for short-term accommodations. If you do decide to invest in a property that houses students, make sure you address subletting rules. Often, students won’t stay in a unit for the entire year since they have a few months off in the summer. They’ll likely ask to sublet the unit or room to someone else so that they don’t have to pay for rent when they’re not using the property.

Waterfront properties

This is a niche market, but waterfront properties never sit empty for long. That being said, landlords should be aware of the additional risks and work that come with these types of properties. Flooding and higher levels of humidity can both cause damage to a building or home.

Cities with young citizens

Younger people are more likely to rent since they often don’t have much money saved. Renting is a more manageable option for people who are just beginning their professional careers. Jacksonville, Kalamazoo, and Iowa City are all young cities, and would be great for landlords interested in renting to a younger population.

Future development

Take a look at what’s on the horizon for a city. Municipal planning departments will have information on developments or plans that have already been zoned into an area. If there is a lot of residential construction happening, the population will likely grow in the near future.

Setting a price for rent

Determining the appropriate amount for rent is not always easy. There are several variables that will impact how much a tenant will pay, including the current state of the local economy, the location of the apartment or home, and the demand for rental housing. If you set the rent too high, you could end up with empty units and a disappointing return on your investment.

Landlords are advised to start with the average rent for the neighborhood and go from there. Consider whether your property is worth more or less than average.

To figure out if the rent you are charging will be enough, calculate what the property actually costs you. Subtract the expected monthly mortgage payment, property taxes (divided by 12), insurance costs (divided by 12), and a realistic amount for maintenance and repairs. A newer building will require less repair work than an older one. If the rent is properly set, you should be left with a bit of money after deducting the expenses.

Conclusion

Landlords that invest wisely are rewarded with a steady stream of revenue. While every city has some great property options, landlords that do their research can find the best U.S. cities to purchase a rental property.