One of the most basic investments you can make is the S&P 500. While it varies widely from year to year, the average annual return has been 9.8 percent, historically, a rate of return that’s proven extremely difficult to match elsewhere.
However, there is one investment that’s even more common: owning a home. And, depending on where you live, becoming a landlord might be a better investment than your 401k, based on a new study from GOBankingRates. To determine which housing markets were more lucrative than the S&P 500, GOBankingRates identified 20 of the 125 largest cities in America where every dollar you spend on a place to live grows faster than if you had stashed it in an S&P 500 ETF or index fund.
That’s especially impressive given that in the five-year period considered — March of 2013 to March of 2018 — the S&P 500 grew even faster than usual, gaining 74.28 percent.
20. Garland, Texas
- March 2013 Median Home Value: $104,896
- March 2018 Median Home Value: $184,750
- Percent Return: 76.1 percent
Garland comes in just ahead of the S&P 500 as an investment, returning over 75 percent for the five years considered. Some of that growth is likely being driven by the fact that Garland is a suburb of the relatively prosperous city of Dallas, which is thought to be the next Silicon Valley, another GOBankingRates study found.
- March 2013 Median Home Value: $234,098
- March 2018 Median Home Value: $412,136
- Percent Return: 76.1 percent
The Mile High City has been seeing its property prices soar at least a mile high over recent years, as it clocked a gain of over 76 percent since 2013. Those sorts of returns are just one of the factors making Denver one of the best cities for aspiring millennial homeowners.
18. Fremont, Calif.
- March 2013 Median Home Value: $599,574
- March 2018 Median Home Value: $1,063,923
- Percent Return: 77.4 percent
The Bay Area in Northern California is one of the hottest housing markets in the country, and getting in five years ago meant being able to take advantage of the Silicon Valley boom, with median home values jumping into the six figures over that period. That sort of thriving local economy is probably a big part of why Fremont is one of the cities that overcame the last housing crisis.
17. Tacoma, Wash.
- March 2013 Median Home Value: $160,690
- March 2018 Median Home Value: $285,526
- Percent Return: 77.7 percent
The city of Tacoma boasts a return of 77.7 percent on a home purchase over the last five years, the sort of return that should please any mutual fund manager, let alone a homeowner. So, while Washington is one of the priciest states to build a home in, if you built in Tacoma you can reasonably expect a pretty good return on that money if things keep going as they have.
- March 2013 Median Home Value: $140,518
- March 2018 Median Home Value: $254,619
- Percent Return: 81.2 percent
The 80-plus percent growth for the Nashville housing market over the last half-decade is probably a welcome growth in their net worth given the high costs associated with living in Music City: it’s one of the places where you need $80,000 or more to live comfortably.
15. San Jose, Calif.
- March 2013 Median Home Value: $594,262
- March 2018 Median Home Value: $1,076,677
- Percent Return: 81.2 percent
Another city that has seen median home value shoot over $1 million in the last five years, San Jose is further proof that, while pricey, the Bay Area offers solid returns on your money when you bite the bullet and plop down a massive down payment.
And if you are thinking of buying in San Jose, there’s still time to take advantage of the best city in California for a successful 2018.
14. Sacramento, Calif.
- March 2013 Median Home Value: $173,419
- March 2018 Median Home Value: $317,947
- Percent Return: 83.3 percent
The study stays in Northern California with Sacramento, though shifting to the west, where the last five years’ returns came in at 83.3 percent and beat out a couple of the major Bay Area cities on this list.
It’s good that the housing market is hot, though, as Sacramento is among the worst cities to start a small business.
13. Las Vegas
- March 2013 Median Home Value: $138,967
- March 2018 Median Home Value: $254,732
- Percent Return: 83.3 percent
While living in Las Vegas can certainly do some serious damage to your savings if you’re a gambler, the good news is that you’ll still be getting a solid return on a home if you purchase there.
And there’s also plenty more to offer in Sin City than just the casinos: Las Vegas is among the most affordable cities for foodies.
- March 2013 Median Home Value: $14,028
- March 2018 Median Home Value: $26,003
- Percent Return: 85.4 percent
You can buy just over 40 median-price homes in Detroit — the poorest city in the state of Michigan — for the cost of just one in San Jose. And, based on the 85.4 percent return, you would have gotten a better return in the process.
11. San Bernardino, Calif.
- March 2013 Median Home Value: $145,566
- March 2018 Median Home Value: $272,707
- Percent Return: 87.3 percent
San Bernardino is back in California, where seven of the 20 cities in this study are located. San Bernardino, though, represents the lone entry that’s from Southern California, located just outside of Los Angeles.
The fact that there are so many California cities on this list should come as no surprise considering that the state’s real estate market is totally unique.
10. Aurora, Colo.
- March 2013 Median Home Value: $168,107
- March 2018 Median Home Value: $317,686
- Percent Return: 89 percent
Aurora might not strike many as a “hot” real estate market. After all, the median home value there still lags Colorado as a whole — over $350,000 to Aurora’s $317,686. However, considering where it started, buying in Aurora has still been a heck of an investment, returning nearly 90 percent over five years.
- March 2013 Median Home Value: $406,335
- March 2018 Median Home Value: $772,729
- Percent Return: 90.2 percent
Seattle’s rapid growth in home prices has sparked controversy surrounding homelessness and the role major companies like Amazon are playing in that. Whatever the reasons, there are few better places to own a home as an investment than in Seattle. In addition to returning over 90 percent for the city as a whole, two different Seattle neighborhoods — Beacon Hill and Pinehurst — rank among the hottest neighborhoods in the country in terms of their housing markets.
8. Reno, Nev.
- March 2013 Median Home Value: $185,202
- March 2018 Median Home Value: $353,447
- Percent Return: 90.8 percent
The Biggest Little City in the world is also especially adept at turning your little down payment into one of the biggest returns in the country. And that’s not necessarily just a matter of your permanent residence: Reno is among the best cities in which to own investment property.
7. North Las Vegas, Nev.
- March 2013 Median Home Value: $122,716
- March 2018 Median Home Value: $236,926
- Percent Return: 93.1 percent
While California is clearly the best state in terms of providing a return on your home equity, Nevada makes a pretty clear argument for why it’s the Southwest region and not just the Golden State: three different Nevada cities made the list, including North Las Vegas where a typical return on a home purchased five years ago is 93.1 percent.
6. Modesto, Calif.
- March 2013 Median Home Value: $148,224
- March 2018 Median Home Value: $286,922
- Percent Return: 93.6 percent
Modesto has come a long way from the sleepy burg that inspired native son George Lucas’ film “American Graffiti.” And it appears to be headed towards even more as the city not only provided a superior return to the S&P 500 over the last five years, but it’s also among the cities where incomes are rising the fastest.
5. Stockton, Calif.
- March 2013 Median Home Value: $147,933
- March 2018 Median Home Value: $286,561
- Percent Return: 93.7 percent
If there’s one clear takeaway from this study it’s that the starting point doesn’t seem to matter to total returns, with a mixture of both high-priced markets continuing to grow and low-priced options that still provide an especially good return.
In fact, living in a city that’s recovering from bankruptcy appears to do wonders for your home value, provided you’re getting in at the right moment. Of the 20 cities that beat the S&P 500 over the last five years, four are cities with a bankruptcy in their past, including Stockton.
- March 2013 Median Home Value: $121,350
- March 2018 Median Home Value: $236,638
- Percent Return: 95 percent
Atlanta might have started at a median home value of just over $120,000 a year, but few places would have seen that money grow faster after you put it down — including the S&P 500. Living in a region where home prices are growing like that comes with its downsides, though: Atlanta ranks the third-worst city to live in if you’re making minimum wage.
3. Oakland, Calif.
- March 2013 Median Home Value: $373,473
- March 2018 Median Home Value: $760,157
- Percent Return: 103.5 percent
There were only three housing markets that would have doubled your money over the last five years, and Oakland is the only one that’s outside of Florida. It is, also, the crown jewel of California and the Bay Area that provided several of the other cities in this study, even if the median home value is still well below that of Fremont or San Jose.
It’s good that homeowners are seeing the value of their equity grow so fast, though. You need to make $80,438 a year to live comfortably in Oakland.
2. Hialeah, Fla.
- March 2013 Median Home Value: $127,011
- March 2018 Median Home Value: $260,769
- Percent Return: 105.3 percent
Miami suburb Hialeah is one place where homeowners have to be happy with their investment as they’ve better-than doubled their money is just five years. One factor could be that the housing market in nearby Miami is putting a lot of pressure on residents that could be driving them to places like Hialeah: some 74.3 percent of Miami residents can’t afford to buy a home there.
1. Tampa, Fla.
- March 2013 Median Home Value: $91,989
- March 2018 Median Home Value: $208,132
- Percent Return: 126.3 percent
Interestingly, Tampa actually has the lowest median home prices aside from one other city in the study: Detroit. However, while the cost of a home there was relatively cheap, anyone who bought five years ago has realized gains in excess of 125 percent.
That’s an especially good deal for someone considering sunny Florida for retirement: Tampa is among the most affordable places to retire.
Where Real Estate Investments Have the Best ROIs
There is one clear lesson learned here: California is where it’s at if you need your home to double as an important investment. a total of seven of the 20 cities where the growth in home prices outpaced the S&P 500 were in California. And that could extend to western states in general, as neighboring Nevada had three cities on the list and Colorado and Washington each added another two apiece.
However, for the biggest returns, you might stay in the east and consider the Sunshine state. Florida only got two cities onto this list, but it packed some punch as they were the top two housing markets of those studied.
Methodology: The study takes the top 125 largest U.S. cities and calculates the percentage of change during this five year period — March 2013 to March 2018 — in order to find what cities have a greater percentage change than the S&P 500 during the same time period (74.28 percent).
More on Real Estate
- Want to Retire Rich? Pay Your Mortgage Off First
- How to Decide Whether to Buy or Build a Home
- Remodeling 101: From HELOC to a Happy Home
About the Author
Joel Anderson is a business and finance writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and focuses on helping make complex financial concepts digestible for the retail investor.