If you're thinking about buying a rental property, it's crucial to familiarize yourself with the best rental markets in the country. These markets not only offer great opportunities for real estate investment but also provide valuable insights into how to invest in specific locations. The success of your investment will largely depend on the viability and potential of the location you choose. To help you make an informed decision, we have compiled a list of the top rental markets for 2022 and 2023.
Best Rental Markets in 2023
In 2022, rent growth was primarily driven by supply and demand constraints in the housing sector. Historically low interest rates, pent-up demand, and government stimuli created a highly competitive market. However, the limited inventory failed to keep up with the buying activity, leading many aspiring homeowners to join the renter pool. As a result, rents soared, and people started looking for alternative locations to live, such as the Sunbelt.
As we approach 2023, the best rental markets are shifting to the Midwest. The Midwest has experienced significant rental rate growth in recent months, and this trend is expected to continue into the next year. The convergence of record rent increases and inflation is causing more people to consider living with family or roommates or delaying their rental plans altogether.
Here are the best rental markets for 2023:
Chicago, Illinois
The Chicago real estate market is positioned to be one of the best rental markets in 2023. With its status as the third-largest metropolitan area in the United States and a high percentage of the population already locked into rental agreements, buying a rental property in Chicago is both a volume play and a smart decision. The city's private sector employment opportunities ensure a steady demand for rental units. With a shortage of available homes and rising home prices, rents have already increased by 7.3% over the last 12 months. If the current trends in interest rates and home affordability continue, rents are expected to rise even higher in 2023.
Cincinnati, Ohio
The Cincinnati real estate market is becoming increasingly attractive for rental property investors. The city has seen a remarkable 6.0% growth in local rents over the last six months, mainly driven by its relative affordability compared to other areas. The median sales price in Cincinnati is below the national average, making it an affordable housing option for many. However, the increased demand is putting pressure on the already limited inventory, resulting in higher rental rates. As buyers are turned away from purchasing due to the lack of available homes, renting becomes a more viable option, and rental rates are expected to continue to increase.
Columbus, Ohio
The Columbus real estate market in Ohio is another excellent choice for rental property investment in 2023. With a median home value lower than the national average, Columbus attracts people looking for more affordable living arrangements. The city has seen a substantial increase in demand over the past year, leading to rising rental rates. As more people look to relocate from less affordable markets, the demand for rentals in Columbus will continue to grow. The limited supply of homes compared to the high demand will give landlords the opportunity to increase rental rates and make it one of the best rental markets in 2023.
Grand Rapids, Michigan
Although the rental rates in the Grand Rapids real estate market haven't increased as quickly as in some other cities, 2023 presents a great opportunity for passive income investors. The city's low inventory, with only 7.0 weeks of supply, creates high demand for rental units. Combined with the city's relative affordability, this demand is expected to bring a steady influx of renters. The supply-demand imbalance has already led to a 5.4% increase in rents over the last year, and this trend is likely to continue. Investors in Grand Rapids can expect a strong demand for their rental units and the ability to increase rental prices accordingly.
Louisville, Kentucky
The Louisville real estate market, although not technically part of the Midwest, is benefiting from the same migration trends as other top rental markets. Renters are choosing Louisville because of its affordability compared to other real estate markets. The median home value in Kentucky is significantly lower than the national average, making it an attractive option for those seeking affordable living. The increased attention on the Louisville market, however, is putting pressure on the limited inventory. With only a little over two months of supply, demand outweighs supply, and this has resulted in an 8.1% increase in rents over the last 12 months. As more people move to Louisville in search of affordable housing, rental rates are expected to continue rising.
New York, New York
New York City has consistently proven to be a lucrative market for rental property owners. The metro-level rent growth in the last six months was close to 5.0%, only trailing behind Columbus and Cincinnati. The demand for rental units is driven by factors beyond affordability, as New York has started to recover from the worst of the pandemic. With people returning to the office and increasing demand for rental properties, landlords have been able to raise rents and are likely to continue doing so in the foreseeable future.
Phoenix, Arizona
The Phoenix real estate market has experienced a significant increase in rents over the last three years. Since the beginning of the pandemic, rents in Phoenix have risen by approximately 32.0%. The city's relative affordability and desirable weather have attracted both older generations and young professionals in the tech industry. The demand from multiple generations of buyers and renters will make Phoenix one of the best rental markets in 2023.
Spokane, Washington
The Spokane real estate market is benefiting from the migration trends caused by the expensive housing markets in nearby Seattle and Portland. Many households are seeking more affordable living arrangements, and Spokane has emerged as an attractive option. With a population of just over 200,000, Spokane is a relatively small city experiencing a surge in demand. The limited supply, with only 11.9 weeks of inventory, and the influx of new residents contribute to the growing rental market. Investors in Spokane can expect to avoid vacancies and increase rental rates in 2023.
Raleigh, North Carolina
The Raleigh real estate market has benefited from the new migration patterns resulting from the pandemic. Home values in Raleigh have increased by approximately 56.3% since the declaration of the global emergency. The rise in home prices has also led to an increase in rental rates. Despite the price increases, residents have not been deterred and continue to choose Raleigh as their home. The city is expected to attract even more people in 2023, making it one of the best rental markets for investors.
San Diego, California
The San Diego real estate market, located in the Sun Belt, has seen significant growth due to the work-from-home trend during the pandemic. Many households chose to relocate to warmer locations, and San Diego was a popular choice. The increased demand has driven rents and home values to rise rapidly over the past three years. Despite the high prices, demand remains strong. Landlords in San Diego can expect reduced vacancies and the ability to increase rental rates in 2023.
Caption: Best rental markets in the US
Best Rental Markets in 2022
The impact of the COVID-19 pandemic has reshaped the real estate market, and the best rental markets in 2021 are expected to remain strong in 2022. The pandemic has prompted people to seek more desirable living situations, leading to increased interest in areas that offer a balance between affordability and low COVID-19 cases. Based on current trends, the best places to invest in real estate in 2022 include:
Boise, Idaho
Boise was one of the best rental markets in 2021 and is expected to continue its growth in 2022. The city attracts people looking to escape small metropolitan apartments and find more affordable living arrangements. With an increase in remote work opportunities, Boise's population is growing, creating a higher demand for rental properties. Investors in Boise can expect increased sales and prices, as well as limited inventory. Rental demand is likely to remain strong, even for those who can afford to buy.
Tampa Bay, Florida
Tampa Bay has shown great potential as a rental market, and the momentum is expected to continue in 2022. The limited inventory in the area, with only 1.6 months of supply, suggests strong demand for rental properties. The low availability of homes for sale will likely drive up rental rates, making it a favorable market for landlords.
Seattle, Washington
The Seattle housing market has been one of the best rental markets in recent years. The city's growing technology sector has attracted a large population, leading to increased housing activity. However, the limited inventory compared to high demand has driven up prices. In 2022, home values are expected to continue rising, making it difficult for many buyers to enter the market. This will result in increased demand for rental properties, providing excellent opportunities for landlords.
Salt Lake City, Utah
The Salt Lake City housing market experienced remarkable growth in 2021, driven by increasing demand, low borrowing costs, and limited inventory. The median home value in Salt Lake City has risen by as much as 24.1% in one year, with rental rates also increasing by approximately 20.7%. The strong demand and lack of inventory will likely continue to push rental rates higher in 2022.
Providence, Rhode Island
Providence has seen a significant increase in rental rates compared to home values. The city's price-to-rent ratio makes renting more affordable than buying, leading to high demand for rental properties. The limited supply of homes compared to demand has allowed landlords to increase rental rates at a higher rate than homeowners can increase listing prices. This unique situation presents an opportunity for investors in 2022.
Dallas, Texas
The Dallas real estate market offers a combination of high rental rates and availability. With affordable rents compared to buying in the city, rental demand is high across all income levels. The market has experienced a 14% increase in rental demand in the past year, and new job opportunities are expected to continue driving growth. Dallas presents a great opportunity for rental property investors.
Orlando, Florida
Orlando has remained one of the top rental markets thanks to its high short and long-term rental demand. With its proximity to popular attractions like Disney World, properties in Orlando are in high demand among tourists. Additionally, the city's growing economy attracts young professionals. The average home price is affordable compared to many other markets, making Orlando an attractive option for rental property investment.
Austin, Texas
Austin's booming tech industry has driven population growth and increased rental demand. The median home price in Austin is relatively high, but rental rates have also shown consistent increases. The city's real estate market is expected to continue growing, making it an appealing option for investors.
Atlanta, Georgia
Atlanta's population and job growth rates continue to climb, making it one of the best places to buy rental property. The city offers a range of industries, including finance, healthcare, manufacturing, and film and television, attracting a diverse population. The high demand for rental properties in Atlanta presents opportunities for landlords.
Caption: Best places to invest in real estate
Top Factors That Affect a Rental Property Investment
Several factors influence a location's rental viability. It's important to consider these factors when choosing an investment location. Here are some of the key factors that impact rental property investments:
Location
The location of a rental property is crucial for its success. It determines the demand for rental properties and the overall rental market health. Consider factors such as the local economy, job opportunities, population trends, affordability, and demand when selecting a location. Investing in an area with a strong rental market and high demand is essential for long-term success.
Economy
The local economy plays a significant role in rental property investments. Factors such as home sales, prices, new construction, population trends, unemployment rates, job growth, and median household incomes should be considered. Positive economic indicators suggest a favorable investment location.
Vacancies & Listings
Pay attention to the ratio of vacancies to listings in a particular area. An unusually high number of listings could indicate a declining market, while low vacancy rates suggest high demand and rental activity. Understanding the vacancy rate and listing ratio helps provide insights into the rental market's health and potential profitability.
Future Development
Areas with ongoing or planned development projects often indicate a healthy market. New projects suggest growth and increased demand for housing. Research local development plans to understand how they may impact the rental market. Investing in areas with future development can be beneficial for rental property owners.
Summary
Choosing the best rental market for your investment is crucial, whether you're buying your first or fourth rental property. Consider indicators such as location, the local economy, vacancies and listings, and future development to identify optimal investment locations. The best rental markets for 2022 and 2023 offer opportunities for landlords to increase rental rates and generate steady income. Start by looking at the rental markets mentioned in this article, but also pay attention to the defining factors of emerging real estate markets to guide your investment decisions.
Ready to start taking advantage of the current opportunities in the real estate market? Click the banner below to take a 90-minute online training class and get started learning how to invest in today's real estate market!
Sources:
