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Investing in property is almost always considered to be a safe and sensible way to invest money. However, while buying property can be a smart way to invest, it is not without risk. If you want to invest in rental property, thorough research is required to help reduce risks and protect your investments.

The first decision you will have to make is where you will buy the property. Will you stay local or look in other areas? Considering property outside your immediate area could be a smart move, especially if house prices are high or rental demand is low where you live.

But how do you choose the best cities to buy a rental property in? While narrowing down the options can be difficult, it’s important to determine what the best cities to invest in property are before making any investments. Otherwise, you could end up in over your head.

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Factors that can affect investing in rental properties

Investing in a rental property could be a great way to make some almost-passive income but this is not an investment without risks attached. There are lots of different factors that will affect whether your rental investment is successful or not.

  • Location — Location is one of the top considerations when it comes to buying a property. The location can give you a good insight into of a number of important factors, such as average household income, employment rate and crime.
  • Unemployment rate — A good way to measure the economic health of a city is to look at the unemployment rates. If unemployment rates are high and there is a lack of jobs, you may struggle to find a suitable tenant for your property.
  • Population growth — Another factor to look at is the population growth. If the demand for housing is high, this will typically mean that your investment will always be in demand.

The 8 best cities to buy rental property in 

1. Detroit, Michigan

As the largest city in Michigan, Detroit has plenty of appeal as a rental property market. The rental yield per year is between 12% to 23%, and the northeast part of the city currently has the highest yield. Property taxes range, on average, between $975 to $1,550, but this still leaves you with a net rental yield of between 9% and 20% on average. Detroit also benefits from a booming startup community, which means it has high employment prospects for renters.

2. St. Louis, Missouri

St. Louis is a popular place for property investors because it has a stable economy and an affordable housing market. The median price of a home in St. Louis is $140,000, which makes it one of the more affordable markets on this list. Monthly rent for a home like this is about $1,269 on average, and the net rental yield in parts of St. Louis is about 10%.

3. Orlando, Florida

Aside from being a popular vacation destination, Orlando is also a great place to invest in property. The average house price in Orlando is $268,945, but savvy investors can find family homes for as little as $171,000. Orland is a highly desirable location due to the beaches, weather and local attractions, which means if you buy in the right part of the city, you probably won’t struggle to find a tenant.

4. Arlington, Texas

With high average rental yields of about 15%, Arlington is a great place to buy a rental property. Arlington has a median home price of $240,000 and an employment growth rate of 7.55%. One thing worth bearing in mind is that Arlington has banned short-term rentals in the city, so if that was your plan, another city may be better for you.

5. Columbus, Ohio

House prices in Columbus are reasonable at $180,899 on average, which may be better suited to those with smaller investment budgets. Zillow predicts that house prices will rise by another 5.8% within the next year, so now is the perfect time to jump in. The population in Columbus has grown by over 13.9% in the last ten years which is promising for rental investors.

6. San Antonio, Texas

Rental yields in San Antonio look promising, with up to 10% growth expected. The job market in San Antonio appears to be thriving as well, with a low unemployment rate of 3.2% in 2019 and an overall job market growth of almost 21%. San Antonio’s average house price is also below average at just $191,405, according to Zillow, which could make buying rental property in this city a very smart investment.

7. Charlotte, North Carolina

Charlotte, North Carolina, has been listed as one of the best places for businesses and job prospects. Household income is fairly high and the cost of living is 1% below the national average. The median house price is fairly high at $250,000, but properties can be found for much less than that. Rental yield is about 6% on average, which could bring some healthy returns.

8. Boise, Idaho

Boise was the fastest-growing city in the nation in 2018 and has grown 14.05% since 2010. The average rent in Boise is $1,703 per month, which has increased by over $200 in the past year. The downside to investing in property in Boise is that the average home price is high. According to Zillow, the home value index is $361,663, which might price out buyers with smaller budgets.

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Things to keep in mind 

If the COVID-19 crisis has taught us anything, it is that things can change very quickly. All investments come with a certain degree of risk, so you will need to assess whether investing in a rental property is right for you at this time. Having a backup income source or diversifying your investments is your safest way forward.

Rental properties can be a great way to boost your income, but being a landlord comes with a huge amount of responsibility and financial investment. If something breaks, it’s your job to fix it — and as a landlord, the property taxes and other routine maintenance costs are yours to carry, too. There are also other costs to think about, such as realtor fees and property damages or lost revenue between tenants, which will further eat into your rental profits.

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