Real estate investing has many benefits. You can make money through rental income or profits generated from the sale of your real estate.
Real estate investing also often has tax benefits that don’t exist in other investments. Investing in real estate is an excellent way to build wealth.
You can invest in real estate in several ways. You can buy properties yourselves or with partners. You can wholesale properties, buying them from their owners and then selling them quickly to another buyer for more money.
You can invest digitally, being one of many investors in a particular property or portfolio. Online real estate investing sites include Fundrise, Realty Mogul, and Crowdstreet. You decide how to invest in real estate based on your goals, the amount of capital you can raise, and your risk level.
Table of Contents
- Factors for A Successful Real Estate Investment
- Local Real Estate Market
- Local Economy
- Best States To Invest in Real Estate Long Term
- 1. Georgia
- 2. Florida
- 3. Texas
- 4. North Carolina
- 5. Tennessee
- 6. Delaware
- 7. Nebraska
- 8. Arizona
- 9. Colorado
- 10. Indiana
- 11. Idaho
- Frequently Asked Questions
- What makes a location prime for real estate investment?
- Is investing in real estate risky?
- Are there states where investing in real estate is a bad idea?
Factors for A Successful Real Estate Investment
However, the success of your real estate investment activities depends heavily on the locations of your property.
Local Real Estate Market
The strength of the local housing market, especially the housing demand, is a major factor in whether a real estate investment will succeed. Home and commercial property values and the turnover rate are other factors.
Local vacancy rates and the number of renters are also critical in determining the likely success of an investment property. If vacancy rates are low and the percentage of renters is moderately high, the area may be good for a property investment.
The vibrancy of the local economy also is an important factor in determining whether to invest in real estate there. Investment properties generally will appreciate well and generate a strong income stream in localities that have
- A growing job market
- Population growth
- A low cost of living
- Affordable property prices
- Low property taxes
- Low overall tax burden
- A relatively high median household income
Best States To Invest in Real Estate Long Term
Based on the local real estate market and economy, these states are the best for traditional real estate investors who want income from a property and appreciation over the long term.
Georgia has the nation’s fourth lowest cost of living, with the median income being about 7 percent less than the national average. It also has a real estate appreciation rate of about 22 percent, which is one of the nation’s highest.
Job prospects in Georgia also are strong, and the quality of life is generally good. The tax burden is the 15th lowest. The combination of all these factors means that investors can potentially collect increasingly higher rents and profit when selling their properties.
Atlanta is one of the best cities to buy an investment property in Georgia. The Atlanta metropolitan area has experienced a steady population growth of 1 percent and 2 percent for the last three years. The U.N. predicts that its growth with continue.
Florida is another good location for real estate investors. Florida is an expensive state; however, it still has many things going for it as a good place to invest in real estate. For one thing, although property and other essentials are expensive in Florida, the rent-to-income ratio of 16 percent is excellent.
Median home prices continue to grow, and about 27 percent of the population rents their home. The Sunshine State also has a robust economy, and its population is growing. It has the fifth lowest overall tax burden among the 50 states.
The best Florida cities for investing in real estate are Orlando, Jacksonville, and Tampa. The Jacksonville, Orlando, and Tampa corridor has added more than 1 million new jobs over the past 23 years, and several Fortune 500 companies are located there.
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Texas’s population and economic growth make it an excellent choice for buying investment property. Its population has grown steadily for several years; indeed, it is the sixth fastest-growing state.
Its gross state product of $1.9tn represents a growth of 2.4 percent annually. The number of businesses in the state has grown about 3.3 percent annually over the past few years, and employment has grown about 2 percent annually.
The cost of living in Texas is below the national average. The state also has affordable real estate based on its median household income.
Property values are rising significantly — almost 20 percent year over year. The state has a relatively high inventory of homes because the real estate market is growing there.
Houston, Austin, Arlington, and San Antonio are the best cities in Texas to buy an investment property. Houston is the world’s Energy Capital, with more than 400 firms located in the city. It is also the base of the world’s largest medical facility.
Austin’s job market and population are growing rapidly. Arlington is part of the Dallas-Fort Worth-Arlington statistical area.
Apartment Therapy says it’s the “most popular suburb in America.” San Antonia is a great place to buy investment property because of its stable real estate prices and rapid job growth.
4. North Carolina
People are moving into North Carolina in droves, making it a top market for real estate investments. The cost of living is about 9 percent lower than the national average. Rental demand is high; about 30 percent of the population is renters.
The short-term rental market also is quite significant because the state’s weather, Atlantic beaches, Appalachian mountains, and other attractions make it a prime tourist mecca. The short-term rental cash on cash return is more than 4 percent. Because of the great short-term rental market, investors could make a lot of money buying a property and turning it into an Airbnb.
North Carolina is also an excellent place for other types of real estate investments. Job growth and economic growth both are high relative to the national average.
Property and real estate appreciation also are significant, and taxes are low. And 36 percent of its residents prefer to rent rather than buy their homes.
The top cities for real estate investing are Raleigh, Durham, and Charlotte because they represent steady economic and population growth. However, mountain cities, such as Asheville, and coastal towns also are great places to buy rental property, depending on your goals.
Tennessee is an excellent choice for a good return on your rental property investment. The median home price is about $165,000 and growing rapidly.
However, compared with the national average, the cost of living is more than 12 percent lower. Tennessee has no state income tax and relatively low property taxes, making its overall tax burden low when compared to the rest of the country.
The state also has a healthy rental market, with about one-third of its residents choosing to rent rather than own. Its rental vacancy rate also is lower than average, while its rents are roughly average compared with the rest of the country. The downside is that the state’s salaries are among the lowest; however, the low cost of living and taxes offset this.
Tennessee also offers some good opportunities for investing in commercial real estate, especially hotels. Crowdstreet has presented projects in the state to its investors.
Nashville has one of the nation’s hottest real estate markets, making it one of the best cities for property investors, with home values projected to increase by about 7 percent. Young professionals are flocking to the city, which ranks sixth in net migration among members of Gen Z (those born from 1997 onward).
Delaware is a small state but a mighty one for buying long-term rental properties. Its population growth is steady, and its housing supply is the seventh tightest in the country. The tight housing market has driven housing prices up more than 13 percent recently.
Overall property values are high relative to the national average, with a median home value of more than $500,000. However, income is also high, and the overall tax burden is lower than that of 48 other states.
Rent prices have climbed even higher — more than 15 percent year over year. Statewide, the long-term rental cash return year-on-year averages 3.13 percent. Many residents rent rather than buy a home; the price-to-rent ratio is 21.
The state ranks about average overall in opportunity factors, with job growth and economic growth being moderate. The potential downside is that Delaware laws are not particularly landlord-friendly.
The best Delaware cities for buying long-term properties are Bear and Hockessin, which provide a long-term rental cash return year on year of more than 4 percent. Millsboro, Middletown, and Smyrna provide a long-term rental cash return of more than 3 percent.
Nebraska is a good option for investing in long-term rental properties because of its median household income and moderate cost of living. The median house price is about $380,000, and the inventory of houses is low.
More than one-third of the state’s residents prefer to rent; however, the average rent of $857 is one of the country’s lowest. Rent prices have been increasing by about 3 percent a year, which is higher than the national average. The opportunity for continuing to raise rent prices is good.
The picturesque state also is one of the best markets for short-term rental properties. About 20 million people visit Nebraska annually, and the Airbnb occupancy rate is quite high.
The average short-term rental cash-on-cash return is close to 5 percent. Laws regarding non-owner occupied short-term rental properties vary, however, so owners should check carefully before investing.
The top city for short-term investment property owners is Belleview, which has a short-term cash-on-cash return of more than 6 percent. Elkhorn and Grand Island have a return of more than 5 percent.
Chadron has a return of more than 4 percent. Lincoln is also a good city for investing. Its short-term cash-on-cash return rate hovers above 3.5 percent, and the city’s breadth of attractions fuels influxes of visitors.
Arizona is one of the best real estate markets. Its population growth is booming, and so is its economy. Another plus is the diversified economy among several industries, including health care, government, and transportation.
The job growth in Arizona is among the fastest in the country. Although housing prices are higher than in many other states, property taxes are lower than average. Fundrise and Realty Mogul offer properties in Arizona as part of their portfolio.
A high percentage of residents rent rather than own their homes. State laws favor landlords who can evict non-paying tenants with just five days’ notice.
Residential properties also appreciate well in Arizona, making it an excellent plan to invest long-term. The long-term rental cash on cash return is about 3 percent, and the price-to-rent ratio is 22.
Investing in rental properties is especially lucrative in Phoenix, dubbed the “Wall Street of the West.” Both long-term housing and short-term rentals are in high demand in Phoenix.
Tucson also is an excellent city for investing in long and short-term rental properties. Mesa, Scottsdale, and Chandler are good locations for long-term rental properties.
Colorado is a beautiful state that provides an excellent quality of life. However, housing prices are very expensive, with the median home value at more than $800,000.
Because home prices are so high, many people rent, making long-term rental properties a good investment. Property taxes are very low, and the state boasts a flat income tax. The high home prices mean that most investors will need solid financing options.
The price-to-rent ratio above 30 makes the hassle of putting financing into place worth it. Short-term rental properties also are a good investment in Colorado, which is the eighth-best state for Airbnb income.
Colorado’s opportunity factors also are high. The job growth rate is high, and the population grows at a stable rate of about 1 percent a year.
Colorado also has a diverse economy. Farming and ranching are huge sectors; however, other industries thrive as well. The law favors landlords who can evict non-paying residents with few hassles.
The state’s real estate market is the strongest in its most desirable cities. They include Aurora, Colorado Springs, Denver, Fort Collins, and Longmont.
Colorado Springs and Denver have particularly high rental rates, which makes the long-term rental market lucrative. The average Airbnb rate is high in those cities, as well. Pagosa Springs, Peyton, Broomfield, Parker, and Arvada are other strong cities for long-term rentals.
Indiana is a strong location for investing in short-term rental properties. The average short-term rental rate is more than $150 daily, and the cash-on-cash return is more than 5 percent.
Visitors enjoy visiting Indiana’s natural attractions, such as canyons and reserves, and data says they prefer vacation rental homes to hotels. Property owners rent out their vacation rentals more than half the time.
Other factors make Indiana a hot location for short-term rentals. Median property prices are well below the national average, which means that even beginners can invest in real estate in Indiana. Local laws generally favor short-term rentals, although some localities require permits.
Although Indiana is a mecca for short-term rentals, it is also a good place for long-term rental properties. The state’s population is growing, and the overall cost of living is about 80 percent below the national average.
The state also has a flat income tax, which helps fuel its popularity. The latest trends demonstrate that real estate is appreciating in the state.
Indianapolis is particularly popular with real estate investors. Young professionals are relocating there, driving the demand for rental property. The city also offers several resources to help investors succeed, including real estate clubs and a number of excellent property management firms.
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Idaho also offers excellent prospects for real estate investors. The state offers an excellent quality of life, low crime rates, vibrant cultural hubs, and many pretty towns.
Mountainous areas of the state are particularly popular places to live. The state also has experienced considerable job growth over the past several years. Its population is also beginning to grow, and statistics say the trend will continue.
More than one-quarter of the state’s residents rent, with the average rental price being about $1,500, creating the potential for great cash flow for investors. The population growth is creating increased demand for long-term rentals, and the state’s beauty is driving demand for vacation rentals. The state has no property taxes and a low overall tax burden.
Opportunities for investing in real estate are particularly strong in the Treasure Valley, which includes Boise, Nampa, and Meridian. The Treasure Valley area is one of the fastest growing in the country, with the population soaring almost 40 percent from 2010 to 2020.
Frequently Asked Questions
What makes a location prime for real estate investment?
A vibrant and growing local economy, population growth, a robust real estate market, and a large population of businesses or individuals who want to rent are key factors in creating the best places for real estate investing. Tax rates and landlord-friendly laws also can be drivers. Areas that attract a lot of vacation travelers can be excellent locations for investing in short-term rentals.
Is investing in real estate risky?
Yes, investing in real estate carries some risk. Investing in areas with a strong local economy and steady population growth is less risky than investing in low-growth areas. However, no investment is guaranteed.
One way to manage your risk is to diversify your portfolio. You can also pool your resources with others through apps such as Fundrise, Realty Mogul, and Crowdstreet. These apps also vet projects before opening them up to investors, which can help those new to the industry and unsure how to discern the best opportunities.
Are there states where investing in real estate is a bad idea?
In general, real estate is a great investment. It provides cash flow, and you can profit from property appreciation.
According to Fit Small Business, the most challenging states for investing in real estate are Louisiana, West Virginia, Vermont, Ohio, and New Mexico. Fit Small Business says these areas have sluggish economies, low household incomes, and high rental vacancy rates. They also tend to have low or negative population growth.
Of course, even in these states, opportunities exist. For example, rent values are increasing in Louisiana and New Mexico.
Vermont is popular with winter enthusiasts who would rent properties over the short term, and Ohio has a large percentage of renters. The rate of job growth is increasing in West Virginia, which could make it a stronger state for investments in the future.
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Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.
Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.
Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.
When not immersed in the world of finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile.