Investors in residential and multifamily real estate understand and follow the #1 Rule of Real Estate: Location, Location, Location.
Purchasing rental real estate in the proper city, whether a multi-million dollar apartment complex or a single-family home, is essential.
What Constitutes Great Real Estate Location?
So…when an investor considers a rental purchase, from an apartment complex to a humble rental house, what constitutes a great location?
Here are some of the traits they often share:
- One or more large, established employers are nearby. Those highly desirable to prospective staff may be a bigger draw. Some employees consider temporary relocation (and rented accommodation) worth the effort, mainly if it adds a prestigious company name to their resume.
- They are home to one or more prestigious universities. While some students will opt for on-campus housing, many prefer to rent an apartment or share a single-family property.
- High residential property prices keep many residents from purchasing. Combined with the current higher interest rate atmosphere, this will result in even higher numbers of renters. Another factor: is the lack of available properties for sale.
With these factors in mind, here are our four picks for 2023’s best cities for investors planning to use residential rental yields to improve their passive income.
Each offers unique options for investors shopping for a multifamily property, such as an apartment building, and for residential investors shopping for condominium units or single-family homes.
#4 – Fort Worth, Texas
Although several Texas cities (Dallas, Houston, San Antonio) are prime multifamily areas for investors, with over 37% of the state’s population renting their homes, Fort Worth boasts awe-inspiring statistics. The population has grown by 28% during the last decade, almost reaching 1 million in 2022.
Nicknamed Cowtown because of the historic Fort Worth Stockyards, Fort Worth shares access to the DFW International Airport with neighboring Dallas. Median home values are growing rapidly, increasing 30% over 2021 to just over $311,000.
Fort Worth’s Population & Workforce
Recent data showed that 41% of the city’s population rents their home. The average rent for a two-bedroom apartment is $1,590, an 18% increase from 2021. For residential investors shopping for Airbnb and VRBO-suitable properties, Fort Worth’s short-term rentals racked up a 49% occupancy rate in mid-2022.
Another essential reason investors choose Fort Worth is: The city is popular with younger professionals who comprise a major rental demographic. Top employers include American Airlines, Exxon Mobil, and AT&T, with more careers offered by oil and gas, technology, manufacturing, distribution, and defense corporations.
A percentage of the young workforce are recent graduates of Texas Christian University, a top-rated school and a prime destination for various career-minded students. TCU Is also famous for its football and other sports teams, with the purple Horned Frog as its mascot.
#3 – Washington, D.C.
Recent US Census data reflected this area’s ranking as having the country's largest share of renting households: 58%. While the expensive sticker prices of single-family homes drive rental data here, other contributing factors exist.
Washington, D.C., is a well-established economic and cultural leader providing solid opportunities for commercial and residential investors. There are 20 universities in or near the district’s limits, including Georgetown University.
Single-family rentals in and around the district reward investors with an average rent rate rising by over 15% by the 4Q of 2022.
Washington, D.C.’s Population & Unique Differentiators
If you’re unfamiliar with this area, you may wonder if Washington, D.C., is a city or a state of its own. It’s neither: It’s a district. Its creation comes directly from the US Constitution, which required an area no more significant than 10 miles square to become our government seat.
Any area deemed a country’s seat of government is guaranteed to attract many potential tenants, from executives to tradespeople to support staff. Over 80 federal agencies have staff requirements, and so do hundreds of elected politicians.
Investors who prefer traditional apartment buildings with smaller units are partial to this area. Investors who plan to add to their portfolio of single-family properties may want to extend their search to Alexandria, a coveted neighborhood across the Potomac River.
#2 – Indianapolis, Indiana
While not as populous as our other picks, Indianapolis scores high with many commercial real estate advisors and brokerages. One multifamily investment fund group described the city as the “most underrated multifamily market in the United States.”
Indianapolis Population, Education, & Housing Costs
The average home price rate within the state is $221,000, with median monthly rent around $1,100, making it an excellent state for beginning residential investors. Property rent tax rates are among the lowest in the nation.
Perhaps the city's diversified local economy is the most substantial incentive for residential investors. Indianapolis has more than its share of big names: Eli Lilly, the Rolls-Royce Corporation, FedEx, and tech leader Salesforce.
Area universities are also a big draw for renters. Butler University, the University of Indianapolis, Purdue University Indianapolis, Indiana University School of Medicine, and Marian University are located in or nearby the city.
Indianapolis is also particularly landlord-friendly, with no rent control laws and short, 30-day timeframes for increasing monthly rent prices.
#1 – Huntsville, Alabama
Highly rated by CRE investors nationwide, Huntsville’s multifamily markets are growing rapidly. Located around 20 miles south of the Tennessee border, the city was #1 within the U.S. News and World Report’s Best Places to Live.
Huntsville’s growing population and low housing costs have resulted in investor equity growth of around 24%, which is 22% more than the national average.
Huntsville’s Population, Industries, & Housing Costs
Until the 1940s, Huntsville only had about 13,000 inhabitants. This changed in 1941 when the military selected 35,000 acres of land for building several munitions facilities. The city’s expansion continued steadily during the post-war area.
Defense contractors Boeing and Lockheed Martin are two major employers, as are several healthcare, technology, and engineering firms.
A more recent arrival: The Federal Bureau of Investigation (FBI). Over 1,000 FBI personnel were relocated to Redstone Arsenal, a U.S. Army post adjacent to Huntsville.
Redstone Arsenal’s other tenants include the Department of Defense, NASA, and the Department of Justice. Today, the Arsenal is home to around 800 military servicemen and women, plus over 45,000 civilian and contract employees.
A residential investor may expect to pay around $487,000 for a single-family rental property in or near Huntsville, or around $171 per square foot, with an average rental income from $2,300 to $2,450 per month.