Buying rental property or making real estate investments can be an effective way to build wealth, have a steady rental income, and diversify your portfolio. As owners of investment properties, most landlords tend to prefer locations characterized by rising property prices or values, a growing economy, and high housing demand. All these attributes can be found in U.S. rental markets, be it for long-term rental property or otherwise. Moreover, low property taxes are a real estate feature in some US states.
According to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single‐family houses in July 2023 were at a seasonally adjusted annual rate of USD 714,000. The national median price for new houses sold in July 2023 was USD 436,700 while the national average home price was USD 513,000. Though average rent prices surged in 2021 and most of 2022, they are decreasing slightly in 2023.
If you’re planning for rental property investment in the U.S. real estate market in 2023, this post offers some insight to rental property investors on the best states for buying rental properties. All the states have housing agencies with various programs aimed at encouraging people intending to rent or buy rental properties, among others.
Here are the states with the best rental markets for real estate investors in 2023.
Indiana
The Indiana Association of Realtors estimates that the state's median home value as of July 2023 is USD 256,250. It is the second-highest of all monthly median home values in Indiana's history, behind June (USD 256,950). Buyers closed 6,941 sales in a holiday-shortened July. The median days from listing to pending sale is eight days.
CNBC ranks the Hoosier State as the ninth-best economy in the US, with a 2022 growth rate of 1.9% and job growth of 2.6%. Home prices are appreciating by about 10% annually, according to the Federal Housing Finance Agency, but despite the rising property prices, the National Association of Realtors says that the state still ranks among the best when it comes to affordable housing (including rental properties). As a landlord, expect to have tenants that will pay rent promptly since Indiana has one of the lowest rent prices in the U.S., according the RentCafe. Cost of living is also lower compared to many other U.S. states.
Idaho
With a booming economy and a cost of living lower than the national average, the Gem State is an ideal state for real estate investors to buy rental property. Idaho’s economy is powered by a blend of industries that foster stability, collaboration, and innovation. It is a business-friendly state with low taxes, efficient and reliable infrastructure, and fewer regulations.
The Idaho workforce is sufficiently skilled and educated, meaning that you’ll not lack the talents you need for your business. The state offers easy access to key markets, major rail lines, key seaports, and major air hubs. At 4.9%, Idaho’s economy was the fastest growing in the nation last year (more than double the national average), and job growth rate was among the best as well. CNBC ranks its economy the eighth best in the US while a Forbes report indicates it boasts some of the lowest property taxes in the country, a few reasons why it is one of the best states to invest in real estate. Moreover, low property tax is also good news in terms of adopting optimal rental strategies since property tax is considered a component of operating expenses.
The state's population is currently experiencing growth, and it’s easy to see why people are moving to Idaho in droves to enjoy the beautiful scenery, mild climate, and low cost of living. Crime rates here are also some of the lowest in the U.S., even in larger cities like Boise.
Looking at the numbers, Zillow puts the median rental property value in Idaho at USD 440,864 while the 2022 median household income (for a family of three) stands at USD 76,635, according to the U.S. Census Bureau.
North Carolina
Boasting both beach and mountain regions, North Carolina has several attractive features that help stimulate interest in its real estate market thus making it one of the best states to invest in real estate. In fact, data indicates that North Carolina is one of the top destinations in the nation for those relocating. The Tar Heel State was second only to South Carolina as a top inbound state in the 2022 Moving Migration Report by North American Moving Services. Last year, 64% of North Carolina movers were moving in from another state, and Raleigh was the top city in the nation for attracting new residents, according to the report.
Photo by Lukas Hartmann
For property values, the median property price in the North Carolina real estate sector was USD 302,549 in April 2023, an annual increase of 4.4%, according to NC Realtors. The median price in April 2020 was just USD 201,000. CNBCranks North Carolina as the third-best U.S. economy. Growth rate for the economy in 2022 was 3.2%, higher than the U.S. national average. Job growth was 3.4%.
Top areas for investment property in NC
It can be more rewarding to buy investment properties in particular locations than in others. Real estate brokerage firm Redfin says the following North Carolina communities have the fastest-growing sales prices in the state as of June 2023:
- Denver: 53.5%
- Elizabeth City: 35.7%
- Holly Ridge: 35.6%
- Franklin: 35.2%
- Kill Devil Hills: 27.2%
Georgia
Low taxes, below-average housing costs, and a cost of living that’s lower than in many other U.S. states all combine to make Georgia an affordable place to live. Thriving cities, charming towns, beautiful countryside connecting mountain vistas with white-sand beaches, plus a temperate climate offering all four seasons means Georgia is also one of the very best places to visit or buy investment property for rent in the South. Across the state, you will find world-class entertainment, professional and recreational sports centers, and restaurants providing delicious cuisine from around the world.
CNBC ranks Georgia as the fourth-best economy in the US. It is yet another state whose 2022 GDP growth rate outpaced the national average. Job growth for the same year stood at 3.4%. Known as the Peach State, Georgia is home to industry giants such as Home Depot, Delta Airlines, and Coca-Cola. The state boasts a diverse and dynamic economy with a positive cash flow, where home prices are appreciating by about 11% a year despite lots of new construction.
The average Georgia home value is USD 319,330, according to Zillow. Some of Georgia’s best markets for buying rental property include Atlanta, Alpharetta, Athens, Chamblee, Gainesville, Locust Grove, Milton, Peachtree Corners, and Warner Robins. RentData estimates the average monthly rent for a 1 bedroom apartment in Georgia to be USD 606.
Texas
With an impressive inventory of moderately priced homes, the Lone Star State is one of the best places to buy rental property in the U.S. An abundance of affordable rental properties, a flourishing economy, landlord-friendly laws, population growth, and the absence of state income tax make Texas an alluring draw for investors.
Nearly 630,000 jobs were created in Texas last year. The 4.8% job growth was among the best in the nation. The Texas economy (ranked second overall by CNBC) is growing at a fast pace (faster than the national average in 2022), and the number of big corporations based in the state trails only California and New York. Median income for a family of three (May 2022) stands at USD 80,733.
In the Texas housing market, the median sales price of homes for Q2 2023 decreased to USD 345,000 from USD 357,388 in the same period last year, according to Texas Realtors. In the same Q2, Texas homes spent an average of 87 days on the market before closing, 20 days longer than a year ago. The price distribution of properties sold in Q2 shows a slight decrease in high-end homes as a percentage of total sales. Homes that sold for at least USD 750,000 made up nearly 10% of homes sold in Q2 last year, while that price range accounted for 8.7% of sales in Q2 this year. Half of the properties sold in Q2 this year were in the USD 200,000 to USD 399,999 price range, up from 45.8% of all sales a year ago.
Tennessee
Tennessee is beautifully located between the Great Smoky Mountains and stunning flatlands. It is one state with a second-to-none music scene, comparatively lower cost of living, and many cities that are great places for residency, and doing business, including real estate investing. The Volunteer State is another economic growth success story — the nation’s second-fastest growing economy in 2022 — driven by durable goods manufacturing. Little wonder it is one of the best states to invest in real estate in the U.S. Economic vibrancy is translating to plenty of new jobs. With a 2022 GDP growth of approximately twice the national average and job growth of 4.1%, Tennessee occupies the fifth position in the CNBC ranking.
Information from the Tennessee Housing Development Agency (THDA) indicates that, state-wide, total home sales in 2022 decreased slightly from a record number of sales in 2021. After 10 straight years of growth, a total of 119,350 homes were sold in 2022, compared to 138,305 the previous year. With that achievement, 2021 became the year with the highest number of home sales since THDA began collecting such data in 1992.
While the number of homes sold decreased slightly from 2021 to 2022, the median price did not. In fact, the median home sale price rose to USD 325,000 which represents the highest nominal median sales price in the state’s history and represents the twelfth consecutive year of an increase in median home price. This increase in home sale prices was unevenly distributed by county such that some counties, in particular, drove the increase more than others. Nonetheless, almost every county experienced an increase in the sales price from 2021 to 2022. Another good destination for those seeking low property taxes and no state income tax on earned wages.
California
Occupying a large part of the U.S. Pacific coast, the Golden State offers lots of amazing beaches, incredible city life, and lots of rental properties. The state attracts vacationers all year round, creating opportunities for short-term income from vacation rentals in every season. The availability of cutting-edge technology, mouth-watering food, and an entertaining Hollywood movie industry gives people several reasons to stay and is yet another plus of owning an investment property here.
Photo by Pixabay
Several cities in the state (including Los Angeles, San Francisco, and San Diego) have consistently ranked among the top rental markets in the country in terms of rental rates and rental yield. Median home price in the California real estate market as of July 2023 stood at USD 832,340. With a Q1 2023 GDP of over USD 3.7 trillion, the Golden State boasts the largest economy in the U.S. and would be the world’s fifth-largest economy if it were a sovereign country.
California is still by far the most populous state, with an estimated 39 million people as of July last year, according to the U.S. Census Bureau. Another U.S. Census Bureau data indicates that California ranks high in terms of median household income. But cost of living is high as well. In a nutshell, the state’s booming economy, including vibrant technology, entertainment, and agriculture sectors, makes it an ideal real estate market.
Colorado
Whether it is the prairies of eastern Colorado; the high peaks along the Continental Divide; the red rock canyons of the Western Slope or its lively urban centers, the Centennial State provides a diverse landscape for profitable real estate investing and a vast assortment of pleasant experiences for travelers. Tourism is one of Colorado’s strongest economic drivers, providing a valuable source of revenue from vacation rentals and other sources as well as helping to create many jobs. For instance, in 2016, 82.4 million visitors spent a total of USD 19.7 billion in Colorado, generating USD 1.2 billion in state and local taxes — an all-time high for the state.
The average Colorado home value is USD 540,838, down 3.5% over the past year, according to Zillow. Denver, the capital city boasts one of Colorado's most active housing markets. It is home to many employers and one of the Mountain West’s largest cities. Top employers include companies in aerospace, bioscience, electronics, energy and natural resources, technology, infrastructure engineering, and many others. Colorado has been ranked the third among states with the lowest property taxes in the U.S. The U.S. Census Bureau data cited above indicates that Colorado is a high median-income state.
Arizona
Located in the dry southwestern part of the U.S., Arizona doesn’t experience much seasonal change. A city like Phoenix, for instance, has over 300 days of sunshine, and winters rarely dip below 70°. The state’s population of over 7 million occupies in excess of 113,000 square miles of territory, ensuring more stress-free living.
The Grand Canyon State also has a thriving economy. During the 12-month fiscal period that ended June 30, 2023, theArizona Commerce Authority, and local economic development agencies successfully worked with companies committed to creating a projected 24,246 new Arizona jobs. Those companies also pledged to invest a record USD 40.73 billion in local communities – single-year records for jobs, capital investment, and wages. Like Colorado, Arizona's property taxes are among the lowest in the country. These are some reasons Arizona is rated among the best states to invest in real estate.
When it comes to median property values, Arizona's housing market had a median property price of USD 350,390 for all housing types in May 2023 — down 3.2% from a year ago, according to the Arizona Association of Realtors. Redfin reports that the median property price for all home types in Arizona was USD 436,100 in May 2023, a 6.2% decline from the previous year. Despite the difference in reports, both show a trend of Arizona home values stabilizing. 2022 median household income here for a family of three is USD 79,110.
Wrapping up
The rental market can be a very sensible and lucrative investment that can help you become financially stable, and ensure steady cash flow while helping to diversify the risks in your investment portfolio, especially if you settle for any of the best states to invest in real estate. It can take huge capital to buy investment property for rent, so before settling for any state or local rental market, be sure to research meticulously and obtain as much information as possible, with a special focus on all the relevant landlord and rental laws guiding the real estate investment you intend to make (e.g., property tax rates, etc).
Before you buy investment property for rent, be sure to also check out rental prices of both short and long-term rental properties, likelihood of strong rental demand, volatility trends in home values (very high property prices can reduce demand)), availability of domestic and foreign tourists, household incomes, and other vital economic variables. Optimal property management is also an important after-purchase requirement for investment properties since it can help bring about real estate appreciation or increase in property values. Luckily, property managers such as engineers, plumbers, and building contractors are readily available in these 10 best states to invest in real estate.
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