GOBankingRates

The Best and Worst Cities To Own Investment Property

f11photo / Getty Images/iStockphoto

DenisTangneyJr / Getty Images/iStockphoto

Across the United States, home prices are rising fast, especially because available inventory is low throughout the nation. In some cities, prices have reached — and even surpassed — levels not seen since the before the financial crisis.

Find Out: Best Places in Every State To Live on a Fixed Income
Learn More: How Long $1 Million in Savings Will Last in Every State

The rise in home prices is bad news for homebuyers — but good news for investors. To determine which places are the best and worst for owning investment property — that is, owning property to rent out to tenants — GOBankingRates surveyed 84 of the most populous metropolitan areas in the U.S.

The study used five main factors to evaluate each area: population growth, increase in home values from October 2020 to October 2021, the average listing price, rent yield (the percentage value of rental income compared to the property’s market price), and how many years it would take to pay off . It turns out that the country’s biggest cities aren’t necessarily the best places to own investment property.

Building Wealth
DaveAlan / Getty Images

The Worst Places To Own Investment Property

The cities that made the bottom of our list have many factors in common. Whether it’s a falling population, poor employment growth or stagnant home values, these 10 cities are the worst cities to own real estate.

Conversely: Best Cities for First-Time Homebuyers

UWMadison / Getty Images/iStockphoto

10. Madison, Wisconsin

  • Population growth: 2.13%
  • Increase in home values: $43,568
  • Average listing price: $381,797
  • Rent yield: 4.05%
  • Years to pay off: 24.7

Home values in Wisconsin’s capital city rose about 10% in the past year, and that’s great news for owners of existing properties. But it you’re looking to buy into the market right now, the average listing price of $381,797 means it will take nearly 25 years to pay off the mortgage.

Get a Deal: 50 Cities With the Most Homes Under $100K

traveler1116 / Getty Images/iStockphoto

9. Richmond, Virginia

  • Population growth: -0.05%
  • Increase in home values: $38,106
  • Average listing price: $386,313
  • Rent yield: 4.28%
  • Years to pay off: 23.4

Between a small drop in population and a relatively low rent yield, Richmond underperforms as a rental market for investors.

Building Wealth
SeanPavonePhoto / Getty Images/iStockphoto

8. Birmingham-Hoover, Alabama

  • Population growth: -5.14%
  • Increase in home values: $28,905
  • Average listing price: $284,621
  • Rent yield: 5.24%
  • Years to pay off: 19.1

The Birmingham-Hoover metro area lost more than 5% of its residents during the study period, but of the 10 cities on the “worst” portion of this list, it had the highest rent yield and required the fewest number of years to pay off the mortgage.

Check Out: 20 Cities Where Small-Business Owners Are Thriving

Matt Bills / Getty Images/iStockphoto

7. Omaha-Council Bluffs, Nebraska-Iowa

  • Population growth: 1.92%
  • Increase in home values: $30,508
  • Average listing price: $329,611
  • Rent yield: 4.06%
  • Years to pay off: 24.6

The average rent is the Omaha-Council Bluffs metro area is about $1,115 a month – second lowest on the list of the bottom 10 best areas to own investment property. That contributes to the time frame of 24.6 years that it takes to pay off a house there.

zhudifeng / Getty Images/iStockphoto

6. Portland-Vancouver-Hillsboro, Oregon-Washington

  • Population growth: 2.68%
  • Increase in home values: $88,391
  • Average listing price: $600,650
  • Rent yield: 3.35%
  • Years to pay off: 29.8

It will take almost the life of a 30-year mortgage to pay off your investment property in the Portland-Vancouver-Hillsboro metro area. While home values increased by an average of more than $88,000 year over year, the cost to buy a home in the metro area has crossed the $600,000 barrier.

Did You Know? Best Place To Buy a Home in Every State

Building Wealth
TriggerPhoto / Getty Images/iStockphoto

5. Kansas City, Missouri-Kansas

  • Population growth: 1.71%
  • Increase in home values: $38,024
  • Average listing price: $366,818
  • Rent yield: 3.94%
  • Years to pay off: 25.4

The Kansas City metro area has a rent yield of nearly 4% and an average rent of a tick of over $1,200 per month, but you’ll be slow to pay off your investment — more than 25 years. In a separate GOBankingRates study, Kansas City, Missouri, was one of 35 cities that were surprisingly affordable places to live.

Davel5957 / Getty Images

4. Wichita, Kansas

  • Population growth: -0.72%
  • Increase in home values: $23,063
  • Average listing price: $235,485
  • Rent yield: 4.42%
  • Years to pay off: 22.6

Wichita’s drop in population and low average monthly rents combine to place it in the bottom five of places to buy investment property. Its average monthly rent is just $867.

alacatr / Getty Images

3. San Jose-Sunnyvale-Santa Clara, California

  • Population growth: 0.91%
  • Increase in home values: $236,641
  • Average listing price: $1,458,155
  • Rent yield: 2.47%
  • Years to pay off: 40.6

Rental income in the San Jose-Sunnyvale-Santa Clara area is a hare under $3,000 per month. It’s an impressive figure, until you consider that the average listing price is nearly $1.5 million. At that rate, it would take 40.6 years to pay off the purchase since the rent yield is only 2.47%.

Building Wealth
DenisTangneyJr / Getty Images/iStockphoto

2. Bridgeport-Stamford-Norwalk, Connecticut

  • Population growth: -0.36%
  • Increase in home values: $94,024
  • Average listing price: $986,293
  • Rent yield: 2.95%
  • Years to pay off: 33.9

On the opposite coast, the Bridgeport-Stamford-Norwalk area in Connecticut also has a rent yield of less than 3% and an average listing price of nearly $1 million. The population dropped a tick, too, leading to its placement at No. 2 on the list.

Davel5957 / Getty Images

1. Los Angeles-Long Beach-Anaheim, California

  • Population growth: -0.09%
  • Increase in home values: $139,203
  • Average listing price: $1,101,710
  • Rent yield: 2.65%
  • Years to pay off: 37.8

It shouldn’t be a surprise that the pricey Los Angeles market reached the top spot on the list of the worst places to own investment property. A drop in population, average listing prices of more than $1.1 million and a comparatively low monthly rental income of $2,432 make it a tough place now to buy investment property and bring in extra cash.

Check Out: 32 Insider Tips for Buying and Selling a House

anouchka / Getty Images/iStockphoto

The Best Places To Own Investment Property

There are some common themes when it comes to finding the best city to own investment property. Notably, Florida and Ohio both have multiple cities that rank among the best places to own property for rent.

Building Wealth
benkrut / Getty Images/iStockphoto

10. Akron, Ohio

  • Population growth: 0.06%
  • Increase in home values: $24,014
  • Average listing price: $172,763
  • Rent yield: 7.21%
  • Years to pay off: 13.9

In Akron, the average monthly rent is $1,038. But the when the average listing price is $172,763, the property owner can recognize a rent yield of 7.21% — one of the highest amounts on the list of best places to own investment property.

DebraMillet / Getty Images/iStockphoto

9. Syracuse, New York

  • Population growth: -1.04%
  • Increase in home values: $20,963
  • Average listing price: $200,640
  • Rent yield: 7.24%
  • Years to pay off: 13.8

Syracuse experienced a small drop in population and a only a comparatively modest increase in home values, but its rent yield of 7.24% is second best on the list of top places to own investment property. It will take just 13.8 years to pay off the mortgage — also good for No. 2 on the list.

Home Ownership: The Cost To Own a 3-Bedroom Home in Each State

Sean Pavone / Getty Images/iStockphoto

8. Memphis, Tennessee-Mississippi-Arkansas

  • Population growth: -0.33%
  • Increase in home values: $31,358
  • Average listing price: $249,436
  • Rent yield: 6.81%
  • Years to pay off: 14.7

The Memphis metro area is the first southern locale on the best places to invest list. The rent yield is strong at 6.81%. Even better, by collecting an average monthly rent of $1,415, investors can pay off their homes in 14.7 years.

Building Wealth
©Shutterstock.com

7. Deltona-Daytona Beach-Ormond Beach, Florida

  • Population growth: 3.63%
  • Increase in home values: $62,700
  • Average listing price: $332,498
  • Rent yield: 5.72%
  • Years to pay off: 17.5

Rental property owners in the Deltona-Daytona Beach-Ormond Beach area will find favorable conditions, such as a 3.63% population growth and a strong year-over-year increase in home values. It’s the first of three Florida metro areas to appear on the list of best places to own investment property in 2022.

MattGush / Getty Images/iStockphoto

6. Riverside-San Bernardino-Ontario, California

  • Population growth: 1.88%
  • Increase in home values: $116,353
  • Average listing price: $584,173
  • Rent yield: 5.07%
  • Years to pay off: 19.7

A leading factor making the Riverside-San Bernardino-Ontario area a good place to invest is its high rental income compared to listing price. While homes in the Inland Empire are expensive — the average listing price is the highest on this portion of the list at $534,173 — the monthly income is $2,256. In the nearby Los Angeles-Long Beach-Anaheim metro area, property owners can expect income of less than $200 per month while the list prices are more than double.

Find Out: These Are the 15 Best Cities for Gen Z To Live Well on a Budget

Freer / Shutterstock.com

5. Tampa-St. Petersburg-Clearwater, Florida

  • Population growth: 4.02%
  • Increase in home values: $74,183
  • Average listing price: $358,459
  • Rent yield: 5.81%
  • Years to pay off: 17.2

Year-round warm weather probably is one reason the population of Tampa-St. Petersburg-Clearwater grew by 4% between 2017 and 2019. With a strong rent yield of 5.81%, owners can pay off their properties in 17.2 years.

DenisTangneyJr / Getty Images/iStockphoto

4. Stockton-Lodi, California

  • Population growth: 2.55%
  • Increase in home values: $122,563
  • Average listing price: $527,764
  • Rent yield: 5.37%
  • Years to pay off: 18.6

East of San Francisco is the Stockton-Lodi metro area, where the average listing price of homes is $527,764. The monthly average rental income, though, is $2,360 — a rent yield of 5.37%. Home prices skyrocketed by 30% from 2020 to 2021, undoubtedly making investors very happy.

©Shutterstock.com

3. Lakeland-Winter Haven, Florida

  • Population growth: 5.21%
  • Increase in home values: $52,006
  • Average listing price: $293,344
  • Rent yield: 6.43%
  • Years to pay off: 15.6

The last of the three Florida metro areas in the top 10 places to invest in 2022 is Lakeland-Winter Haven, a booming region with a 5.21% increase in population. Its rent yield of 6.43% is strong, and it will take investors just 15.6 years to pay off their properties.

DenisTangneyJr / iStock.com

2. Springfield, Massachusetts

  • Population growth: 10.96%
  • Increase in home values: $44,004
  • Average listing price: $335,810
  • Rent yield: 5.55%
  • Years to pay off: 18

Springfield, in the western part of Massachusetts experienced massive growth from 2017 to 2019, with the population increasing by 10.96%. The average listing price of $335,810 is less than half of that in Boston — $696,036 — making Springfield a much more affordable option for investors.

Things To Know: 40 Things Every 40+ Should Know About Buying a Home

Ron_Thomas / Getty Images/iStockphoto

1. Toledo, Ohio

  • Population growth: 6.43%
  • Increase in home values: $18,873
  • Average listing price: $169,727
  • Rent yield: 7.56%
  • Years to pay off: 13.2

Toledo checks off all the boxes for prospective investors, making it the top place to buy investment property in 2022. Among areas in the top 10, it has the lowest average listing price and the highest rent yield, and it takes property owners just 13.2 years to pay off the home.

More From GOBankingRates

Methodology: GOBankingRates.com surveyed 84 of the most populous U.S. cities, based on 2019 Census estimates, and evaluated each city by the following factors: (1) population growth, based on changed from 2017 to 2019; (2) increase in home values, based on Zillow index, with the percentage representing the change in median home values for all homes from October 2020 to October 2021, sourced December 2021; (3) rental yield, the percentage value of rental income compared to the property’s market price, based on data from Zillow; (4) 2021 average listing price as sourced from Zillow; and (5) how many years it would take to pay of an investment property comparing 2021 listing price and yearly rent. All data was collected and is up to date as of Dec. 9, 2021.