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Who doesn’t want to make a few extra bucks these days without having to log lots of overtime or run a side hustle? That’s why many enter the ever-promising world of real estate investment.
But although buying a rental property and then collecting checks from tenants might seem like an easy path to financial stability, the reality is a bit more challenging. And finding a home to lease out in an area where appreciation and rents are steadily rising (as you’d want, to protect your investment) can be tough.
So where should wannabe real estate investors consider buying? They need look no farther than Cleveland.
The Midwestern metro was named the best for single-family investment houses in the first quarter of 2017, according to HomeUnion, an Irvine, CA–based company that helps everyday investors find, buy, and manage their properties.
Single-family rentals in the metro appreciated 16.2% annually from the first quarter of last year to the first quarter of this year, according to the report. They also delivered an 11.5% return on investment for all-cash sales this year.
The best part about the Cleveland area is that single-family homes are still affordable. The median price of an investment home in the metro was $75,512, according to the report.
“The Midwest and the Southeast generate the highest returns,” says HomeUnion’s director of research, Steve Hovland. “The rents are high and the prices of the homes are low compared to most of the country.”
Most investors hail from more expensive states such as California, New York, Colorado, and Texas, where it’s harder for residents to afford a second home, let alone a first one, says James Wise, owner of the Holton-Wise Property Group, a local company that buys and sells homes for investors and offers property management services. So they buy rental properties in cheaper parts of the country and use the income to plump up their nest eggs, finance their retirement, or even save up for a down payment on a home in their area.
“You can buy a property, get a mortgage on a property, and then you can have a tenant who will not only pay off your mortgage, pay for your management company, pay for your repairs, and put a profit in your pockets,” Wise says. “You can’t do that in L.A.”
On the low end, landlords can buy single-family homes for about $50,000 and rent them out for between $850 and $900 a month. These homes aren’t always in the most desirable neighborhoods, but they’re usually in fairly good repair, he says.
Higher-priced investment homes in the suburbs range from about $75,000 to $90,000, he says. They typically fetch about $950 to $1,200 a month.
That might not seem like a big difference in rent, considering the higher cost of the home. But tenants in more expensive homes are less likely to trash the residence, steal things like hot water tanks (which happened to one of Wise’s properties), and not pay their rent, he says.
Cleveland wasn’t the only metro that makes financial sense for potential investors, according to the HomeUnion report. The other metros rounding out the top 10 were Cincinnati; Columbia, SC; Memphis, TN; Richmond, VA; Oklahoma City; Indianapolis; St. Louis; Pittsburgh; and Philadelphia.
They are mostly Midwestern or former manufacturing metros with affordable homes on the market.
The worst markets for budding real estate investors were primarily among the nation’s highest-priced cities along the California coastline. The top 10 were San Francisco; Silicon Valley’s San Jose, CA; Orange County, CA; Los Angeles; San Diego; Seattle; Sacramento, CA; Salt Lake City; Oakland, CA; and Portland, OR.
“The most expensive parts of the country can be a little bit of a roller coaster,” says HomeUnion’s Hovland of these areas where the cost of homeownership has skyrocketed in recent years. This could deter many investors who are more uncomfortable with taking on risk. “The prices of homes … could decrease in the future.”
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