How to Choose the Best Location for Investment Property in the US?

The United States has an average ROI of 10.6% for rental properties and also has high gross rental yields, between 7-10% (depending on the county or state). These yields exceed those of other developed Western countries, including:

• Germany – gross rental yields 3.36% 
• France – gross rental yields 4.12%
• Norway – gross rental yields 4.28%
• Spain – gross rental yields 6.08%
• Italy – gross rental yields 6.28 

(data for Q2, 2023)

In short, the US is one of the best markets to invest in real estate and rental properties. But, it’s also one of the biggest markets in the world, which can make it difficult to find the best location for rental property. Difficult, but not impossible. And that’s where we come in. 

How to Find the Best Location for Rental Property?

Whether you’re a US resident looking to purchase rental property out of state, or a nonresident investor trying to diversify assets, investing in the US real estate market, might just be the right thing to do. 

But, finding the right location in the 9,833,517 sq km of the United States, could pose a problem or two (or three). 

Luckily for you, our team at NRI has faced those issues and have come up with a few solutions that will help you find success on your journey as a nonresident investor. Here are 9 key factors to consider before choosing the best location for rental property:

9 Factors to Consider for Finding The  Best Location for Rental Property

1. Population Growth 

Real estate exists for people. 

The places where people want to live in and move into, will more likely than not create great investment opportunities for both nonresident and out-of-state investors. The statistics that show population growth are an important factor to consider before investing in rental properties. 

Currently, the trends in the US favor the Southern States, with the leading increase in population experienced by:

Other notable states that are also experiencing population growth, and that could be considered viable options for investment in rental properties, include:

2. Is the State Landlord Friendly or Not?

Landlord-friendly states usually have lower taxes, fewer laws and regulations that landlords have to deal with (e.g. laws on rent increases and rent control), much shorter eviction processes (when compared to non-friendly states), and clear lease agreements. 

The most landlord-friendly states in the US include:

• Alabama
• Arizona
• Florida
• Texas
• Georgia
• Wisconsin

So, when you’re trying to choose the best location for investment property, make sure to check if the state you’re looking at is considered landlord-friendly. This can save you a lot of headache in the future as you will have protections under the law that are not offered to landlords in less-friendly states.

3. Unemployment Rate

What good is a rental property if renters don’t have jobs and can’t pay their bills? The truth is, it’s not good (in fact it’s really bad). That’s why you should always do your research on unemployment rates for the state or city you’re looking to make a purchase.

Just like with the property tax, lower unemployment rates are better. The states with low unemployment, that you should definitely consider include: 

4. Rent Prices

Rent prices are the one metric that will potentially have the biggest impact on your ROI. This makes it vital to always check rent prices in the state, county, or area you’re looking at for investment opportunities. 

For example, the average monthly rent prices in some US states are:

• California – $1,586
• Maryland – $1,415
• Massachusetts – $1,336
• New York – $1,315
• Florida – $1,218
• Delaware – $1,150
• Texas – $1,082
• Wisconsin – $872

Average rent income can give you a good idea about what you should expect to earn from a rental property in a specific state. But, they don’t tell you the whole story. What do we mean by this? To explain this, let’s take a look at Wisconsin. 

As we’ve mentioned above, the average rent per month in Wisconsin is $872. In order to determine if it’s a viable option for you to invest in or not, you can’t stop there. You have to take a closer look at counties and neighborhoods (of which there are many) to get the full picture. 

Why? Because Wisconsin has a lot of areas where rent far exceeds the state average of $872. 

For example, in Pierce and St. Croix counties, the average rent is almost $ 2,000 per month. Dane County has an average rent of around $1,800, while in Rock and Walworth counties, residents have to pay just above $1,350 per month for rent. 

So, if you want to get it right on your first try and find the best rental investment property for your needs, you have to go deep with your research. 

5. Crime Rates 

High crime rates have never been synonymous with good investment opportunities, or at least not when talking about the real estate market. So, when searching for a rental property, make sure to check out the crime statistics.

For example, the state of Wisconsin has a violent crime rate of 3.24 (per 1000 population), well below the national average of 4 violent crimes (per 1000 population). 

Other states with lower than average crime rates per 1000 population include:

• Ohio – 3.08
• Kentucky –  2.59
• Washington – 2.93
• Massachusetts – 3.08
• North Dakota – 3.29

But, should crime statistics for specific states be enough to discourage you from buying or nudge you into making a purchase? Let’s review.

The US is enormous and should be looked at as a symbol of moderate growth, boasting many developed American cities. Each of these cities has an economy of its own, and, to go even further, each neighborhood tells its own separate story. So, instead of only looking at the state or county crime rates, be sure to also check out the crime statistics for the neighborhood you’re looking to invest in.    

To give you an example of how this works, let’s take a brief look at Texas’ crime statistics:

The state of Texas has a crime rate of 4.55 (per 1000 population). Austin, the state capital of Texas, has a crime rate of 5.23, (higher than the average for the whole state). But, a specific neighborhood in Austin, Avery Ranch, has a crime rate of 2, well below the national and state average.

6. Median Income 

Unemployment rates will tell us the percentage of the populace who have jobs. On the other hand, the median income can show us how much money people are making. Why is that important? 

Before we tell you more, let’s take a look at some state statics about the average income in the US:

Average yearly income statistics can be a great source of information that points you in the right direction when looking for rental property investment that suits your needs. But, it can’t be all. 

The higher the median income is, the more money people will be able to spend on rent. 

Meaning your ROI can be higher. However, what higher average income also usually brings is increased property values. This means that your initial investment could possibly be impacted (i.e., increased) if you choose to only look at higher-income states or areas.

There needs to be a balancing act between the amount of money you’re looking to invest, the average income in the area of your choice, and current rent prices. And, who better to do that balancing than a team of people who have collectively been doing just that for well over 3 decades?  

7. Property Taxes

Property tax, or real estate tax, is an annual or biannual fee (depending on the state) that every homeowner in the United States has to pay. And more importantly, it is a tax that can have a big impact on your ROI. That’s why, before you invest in a rental property, you should always check out how high or low property taxes are (for the specific states or state you’re looking at). 

Obviously, low property taxes are always better, and that’s why you should consider the following states for your investment:

Other states, that still offer a great real estate investment opportunity but do have higher property taxes are:

8. Property Management 

If you don’t have any connections (business, family, or friends) that will regularly bring you to the state or city you’re looking to invest in, hiring a property management company or a property manager could prove to be invaluable. They can help file taxes, deal with tenants (including finding them), set up contracts, take care of the property, etc…

With a good property manager, you won’t have to frequently travel to check up on your rental, won’t have to deal with tenants directly, and in the best of cases, you’ll be able to handle the entire process remotely (from your state or country).

9. Additional Free Tip From NRI Team

You’ve gone through all of the data (with or without our help), checked out all of the factors we’ve talked about, and found the perfect location for investment property. What’s next? 

Should you immediately start looking for property managers or property managers agencies? Should you be putting in the downpayment? Well, according to our team, not yet. 

What you should do, if you can, is visit the neighborhood you’re planning to invest in. The only way to get the full picture is to go there and talk to the people that actually live there. Ask them questions, like:

• What’s the neighborhood like? Is it a good place to live?
• How long have you lived here?
• Is there crime in the neighborhood? Any break-ins or property crimes?
• What’s the local economy like? Does it support small business owners and local shops? Or, do people usually do their shopping in big supermarket chains?

To put it bluntly, you should try to feel the vibe of the neighborhood.  This will give you additional information that can’t be found in statistics and sifting through available data. 

What is The Best Location for Rental Property? | Top 10 List

1. Milwaukee, Wisconsin

Milwaukee is a city in expansion, not just because of its moderate population growth but also because of many industries that thrive in it (e.g., manufacturing, education, healthcare, etc.). Milwaukee tops our list because of its average rental yield of 7.7% and affordable prices, making it a perfect city to invest for anyone just starting out with their real estate journey.

Average home price – $180,000

Average rent – $1,410

2. Houston, Texas

Houston, the fourth largest city in the United States, is experiencing growth in population as well as an influx of technology companies (most notably Elon Musk’s Tesla). This opens it up for investors looking to make a great return on rental properties. Gross rental yield in Huston can go anywhere from 7.67% to 9.68% (depending on the exact location of the property).

Average home price – $264,789

Average rent – $1,342

3. Detroit, Michigan

Detroit boasts a rental yield of up to 10.6%, making it one of the best locations for investment property. Although the city, as a whole, has higher-than-average crime rates, there are areas in it that are virtually crime-free.  

Average home price – $75,800

Average rent – $1,200 

4. Orlando, Florida

Orlando, a popular tourist center, gives inventors the opportunity to target two different markets – long-term residential or tourism and holiday markets. Although very different, both of these markets offer high returns. 

Average home price – $372,206 

Average rent – $1,940

5. Chicago, Illinois

Chicago, one of the largest metropolitan areas in the US, has a strong economy and more than stable real estate and rental markets. This makes it a good location for rental property investment.

Average home price – $352, 000

Average rent – $2,309

6. Atlanta, Georgia

The center of emerging cultures and music, as it is considered by many, Atlanta has slowly become one of the best locations to invest in rental properties. It should be noted that Atlanta has the eleventh largest GDP out of all the cities in the US and is the home to the busiest airport in the world by passenger traffic, Hartsfield-Jackson airport (over 93.6 million passengers in 2022).

Average home price – $379,911

Average rent – $1,852

7. Spokane, Washington

The housing market in Spokane is affordable, and there is a strong demand for rentals. Couple that with a strong and growing economy, and you’ve got yourself one of the best locations for investment property.  

Average home price – $382,990

Average rent – $1,353

8. Ocala, Florida

Ocala, famous for its gorgeous landscapes and its historic city center, has increasingly become popular with both retirees and young families. The population diversity and a strong growing economy make Ocala a viable option for many investors looking to purchase a rental property.

Average home price – $271,737

Average rent – $1,533

9. Huntsville, Alabama

With both jobs and population experiencing a steep increase, Huntsville has slowly become one of the best places for investors in rental markets. The houses are still on the affordable side, so if you want to invest in Alabama, try and do it as quickly as possible.

Average home price – $281,224

Average rent –  $1,195

10. Charlotte, North Carolina

With Charlotte (and its wider area) experiencing both population and job market growth, the city is steadily becoming ripe with investment opportunities. Including, obviously, the rental and real estate markets.

Average home price – $387,055

Average rent – $1,670