Destination Heartland! That’s where savvy investors should be heading according to the latest rankings of the best real estate markets for investing in single family homes as rental properties. Investment opportunities still boom in America’s major metro areas such as Dallas, Atlanta, Phoenix and Minneapolis, but don’t overlook places like Lafayette, LA or Erie, PA.
The quarterly rankings data points to Small Town, U.S.A—cities with populations between 200,000 and 500,000—as good places to invest as well. “Many of these markets not only have unemployment rates well below the national average, but they show strong job growth and housing prices have bottomed out,” says Ingo Winzer , president and founder of Local Market Monitor (LMM).
Winzer says that the smaller markets are “great places to rent out single-family homes because strong economic growth can quickly absorb the existing housing options.”
The top ten smaller markets in order are Lafayette, La.; Fort Wayne, Ind.; Erie, Pa.; Corpus Christi, Texas; Houma, La.; Fayetteville, Ariz.; Tyler, Texas; Longview, Texas; Lincoln, Neb.; and Ann Arbor, Mich.
All of these markets have low “risk premiums.” The lower risk premiums of the smaller markets make them a safer investment.
“Investors should approach our top 20 large markets with caution,” advises Winzer. “Even though the higher risk premiums mean investors may be able to get a higher return relative to their investment, 18 of these markets are in California, Florida, Nevada or Michigan, all areas that have suffered from an overabundance of housing, a poor local economy, or both,” Winzer notes.
“Many of the California markets were over-developed during the housing boom because home prices were still affordable compared to the big coastal markets; lower prices on the coast now diminish that attraction. The Florida and Nevada markets were heavily developed for second-home buyers, now evaporated, leaving them with too much supply for local demand to absorb. In Detroit, the population is just outright shrinking,” he says.
His advice: Don’t hesitate to look at smaller markets for investment. That’s the same advice that HomeVestors’ co-president, David Hicks , is offering. “We often see that the smaller markets are the best-kept secret of investing, for example in Fort Wayne, IN or Lincoln, NE or Ann Arbor, MI. Many of these smaller markets offer a consistent demand for rental properties. Investors can discover for themselves that the big city isn’t the only place with a great deal for investors,” he says.