The end of each year followed by the beginning of a new one is always the right time to think about where we stand at the moment and what the future holds for us. Maybe the end of 2017 is the right time for you to enter the exciting world of real estate investing or solidify your presence there. If you are a beginner real estate investor, then the first thing you need to do is to buy an investment property. If you are an experienced real estate investor, then now is a good time to buy another rental property to grow your real estate investment portfolio. After all, real estate experts recommend that investors add a new rental property to their real estate investment portfolio every 2-3 years to grow at a proper pace. To be of maximum help to both beginner and experienced real estate investors in their next rental property purchase, here we go over the best places for traditional rentals at the end of 2017.
Why Are Traditional Rentals an Excellent Real Estate Investment Strategy?
One of the most wonderful things about the exciting world of real estate investing is the diversity of options with regards to the best real estate investment strategy. Regardless of your particular situation as a real estate investor, you can always find an investment strategy that suits your specific needs and conditions. Needless to say, buying, owning, and managing a rental property is one excellent way to invest in real estate. Despite the recent growth in short-term rentals, or Airbnb rentals, traditional rentals (long-term rentals) remain the ultimate real estate investment strategy. After all, people in any location will always need a place to live in and call home (even if for just a few years). Moreover, traditional rentals face significantly less legal restrictions than Airbnb rentals, which have to fight with the growing legal restrictions under pressure from the hotel industry and lobby. In (almost) any location, traditional rentals are legal and regulated by laws which protect the interests of both the landlord and tenants.
But to make our argument that traditional rentals are the best real estate investment strategy, let’s take a look at some of the many advantages which they offer:
- High and long-term occupancy rate
- Low vacancy rate
- Low turnover
- Regular/monthly rental income
- Low maintenance need and cost
- High demand from tenants
- Laws protecting both the landlord and tenants
- No/few legal restrictions
Why Is Location So Important in Real Estate Investing?
Whether you are a beginner real estate investor or an experienced real estate investor, you must already know how important location is in real estate investing. It will determine:
- How strong the demand from tenants is.
- What kind tenants you can get.
- The best investment property type (single family home, multi family home, apartment, condo, townhouse, etc.).
- The optimal rental strategy (traditional rental strategy or Airbnb rental strategy).
- The property price.
- The rent price or how much you can charge for your rental property.
To sum it up, location is what will make it or break in real estate investing. And we do not exaggerate.
All this means to say that you should be very careful when choosing the location for your rental property, regardless of whether we talk about traditional rentals or Airbnb rentals. Location is key.
What Makes for the Best Places for Traditional Rentals Real Estate Properties?
The goal of any real estate investor is to make money. The owners of traditional rentals make money by renting out their investment properties to tenants and charging rent for this. So, the best places for traditional rentals are those locations which will allow real estate investors to make the most money, i.e., to have the highest return on investment.
There are many ways and metrics to measure return on investment in real estate investing, but most real estate experts agree that cash on cash return is the best metric. Why? Let’s see below.
What Is Cash on Cash Return and Why Is It the Best Metric of Return on Investment in Real Estate?
What is cash on cash return? In simple words, it is a metric of the return on investment of your rental property. This is one of the most important terms which any real estate investor uses on daily basis, so it is a real estate concept which deserves close attention. The cash on cash return of a rental property – whether we talk about traditional rentals or Airbnb rentals – is the net operating income (NOI) divided by the total cash investment.
Cash on cash return formula:
Cash on Cash Return = Net Operating Income (NOI)/Total Cash Investment
The net operating income, or NOI, is the difference between the total annual rental income (the monthly rental income multiplied by 12) and the operating expenses of the investment property. The total cash investment is all the money you pay in cash in order to buy an investment property and prepare it for renting out. This includes the cash you pay towards the property price, the loan fees, the real estate agents’ fees, the closing fees, the repair costs, and any other cash expenses.
Why is cash on cash return the best metric of return on investment in real estate? The answer is simple. Unlike the cap rate, which is another great metric of return on investment in real estate, cash on cash return actually looks at the actual cash invested in the rental property rather than the purchase price of the property. Let’s be realistic. Very few real estate investors manage to buy their investment properties all in cash, so what part of the rental property you financed through cash is very important. So, cash on cash return is the better metric of return on investment.
What is good cash on cash return? That’s another important question in real estate investing. Most real estate experts would tell real estate investors that good cash on cash return is anything about 8-12%. However, once again, we have to be realistic here. While cash on cash return of 8% or more is definitely good, this doesn’t mean that anything below is bad. Actually, the world of real estate investing has changed so much in recent years with the constant entry of new real estate investors and more and more landlords, that cash on cash return of 5% or more is excellent.
How do you calculate cash on cash return in the most efficient way? Real estate investing is all about making money. In order to make money nowadays, you have to be efficient with your time and efforts. Calculating cash on cash return for a rental property requires conducting investment property analysis. Meanwhile, you also have to conduct real estate market analysis to get real estate comps to make sure that your prospective rental property performs well compared to other properties in the local housing market. Now just imagine how much time this will take you if you are a beginner real estate investor. Alternatively, if you are an experienced real estate investor, you already know how tedious this kind of work is. Real estate market analysis and investment property analysis are not exactly the most exciting part of real estate investing, right?
Fortunately enough, we live in the 21st century, where everything is all about technology and online resources, including the world of real estate investing. Thus, you don’t have to conduct real estate market analysis and investment property analysis on your own anymore as a real estate investor. Now you can rely on Mashvisor’s investment property calculator instead, which will save you lots of time and effort, which you can spend on improving and enhancing your real estate investment strategies instead of on adding up and multiplying numbers. Mashvisor’s investment property calculator is your best friend in the world of real estate investing, which will allow you to make the best real estate investments within minutes. This real estate investing tool provides real estate investors with all the crucial numbers to measure return on investment in real estate, including rental income, one-time expenses, recurrent expenses, cash flow, cash on cash return, and cap rate. What’s best is that all these numbers are divided for the traditional rental strategy and the Airbnb rental strategy, which helps real estate investors choose the optimal rental strategy for each location and each rental property.
What Are the Best Places for Traditional Rentals at the End of 2017?
We are sure that all real estate investors are excited about reading about the best places for traditional rentals at the end of 2017. These are the locations where traditional rentals will yield the highest return on investment. Any beginner real estate investor as well as experienced real estate investor should note that these are not necessarily the cheapest places (with the lowest median property price) or the places which get the highest traditional rental income. Instead, the best places for traditional rentals are those that offer the best combination of property price and rental income to secure high return on investment.
Before we move to our list of the best places for traditional rentals at the end of this year, one final note is due: The cash on cash return and cap rate computed by Mashvisor’s investment property calculator are the same numbers because Mashvisor’s investment property calculator assumes all-cash investment property purchases in its computations.
1. Riverhead, NY
- Median Property Price: $330,000
- Traditional Rental Income: $6,210
- Traditional Cash on Cash Return: 18.7%
- Traditional Cap Rate: 18.7%
- Airbnb Rental Income: $1,510
- Airbnb Cash on Cash Return: 2.7%
- Airbnb Cap Rate: 2.7%
If you are looking to buy an investment property at the end of 2017, you should know that Riverhead, NY offers the highest cash on cash return for traditional rentals in all of the US, according to data from Mashvisor’s investment property calculator. Remember what we said about good cash on cash return? By all standards, 18.7% is amazing, and that’s what Riverhead, NY offers. The reason is affordable median property price combined with very high traditional rental income.
The downside to investing in a Riverhead, NY rental property is that Airbnb rentals there are doing quite poorly, so you will not have the option to change your rental strategy as a real estate investor there. But who would want to change with traditional cash on cash return of 18.7%?!
2. Fremont, CA
- Median Property Price: $180,000
- Traditional Rental Income: $2,750
- Traditional Cash on Cash Return: 13.8%
- Traditional Cap Rate: 13.8%
- Airbnb Rental Income: –
- Airbnb Cash on Cash Return: –
- Airbnb Cap Rate: –
The second on our list of the best places for traditional rentals in the US housing market is Fremont, CA. while the traditional rental income here is much lower than in Riverhead, NY, the median property price is so affordable that the traditional cash on cash return is still very high at 13.8%. Actually, the affordable median property price makes Fremont, CA an excellent investment opportunity for any beginner real estate investor as new investors are likely to lack sufficient cash deposits.
However, keep in mind that while traditional rentals are an excellent opportunity in Fremont, CA, this is just a bad location for Airbnb rentals.
3. Naples, FL
- Median Property Price: $437,000
- Traditional Rental Income: $3,950
- Traditional Cash on Cash Return: 8.8%
- Traditional Cap Rate: 8.8%
- Airbnb Rental Income: $2,040
- Airbnb Cash on Cash Return: 3.9%
- Airbnb Cap Rate: 3.9%
#3 among the best places for traditional rentals according to Mashvisor’s investment property calculator is Naples, FL. While the median property price here is relatively less affordable, the traditional rental income is just great, at nearly $4,000. Although the projected traditional cash on cash return is a single digit, it is still more than excellent.
On the down side, Naples, FL is not very profitable for short-term rentals, so as a real estate investor you would really need to stick to traditional rentals here.
4. Rio Rancho, NM
- Median Property Price: $183,000
- Traditional Rental Income: $1,800
- Traditional Cash on Cash Return: 8.5%
- Traditional Cap Rate: 8.5%
- Airbnb Rental Income: $1,470
- Airbnb Cash on Cash Return: 8.0%
- Airbnb Cap Rate: 8.0%
If you are looking for affordable location for your first rental property as a beginner real estate investor, Mashvisor’s investment property calculator is telling you to try out Rio Rancho, NM. The traditional rental income here is more modest, but the median property price is more than excellent, to add up to great cash on cash return for traditional rentals.
If you are just entering the exciting world of real estate investing and not sure what your favorite rental strategy would end up being, Rio Ranco, NM is an excellent location to buy an investment property at the end of 2017. Why? Because Airbnb rentals are very profitable here, yielding return on investment close to that of traditional rentals.
5. Visalia, CA
- Median Property Price: $244,000
- Traditional Rental Income: $2,080
- Traditional Cash on Cash Return: 7.1%
- Traditional Cap Rate: 7.1%
- Airbnb Rental Income: $1,250
- Airbnb Cash on Cash Return: 5.0%
- Airbnb Cap Rate: 5.0%
Visalia, CA is #5 among the best places for traditional rentals at the end of 2017, according to Mashvisor’s investment property calculator.
In addition, Airbnb rentals are a viable real estate investment option too in Visalia, CA.
6. Schenectady, NY
- Median Property Price: $159,000
- Traditional Rental Income: $1,380
- Traditional Cash on Cash Return: 6.6%
- Traditional Cap Rate: 6.6%
- Airbnb Rental Income: $620
- Airbnb Cash on Cash Return: 2.6%
- Airbnb Cap Rate: 2.6%
If you want an affordable first investment property with high return on investment, you should consider investing in real estate in Schenectady, NY. Any beginner real estate investor should be happy to buy an investment property in Schenectady, NY to rent out through the traditional rental strategy as it will generate cash on cash return of 6.6%.
Meanwhile, Airbnb rentals are not a good option here.
7. Pawtucket, RI
- Median Property Price: $227,000
- Traditional Rental Income: $1,980
- Traditional Cash on Cash Return: 6.5%
- Traditional Cap Rate: 6.5%
- Airbnb Rental Income: $1,200
- Airbnb Cash on Cash Return: 2.7%
- Airbnb Cap Rate: 2.7%
#7 on our list of the best places for traditional rentals, Pawtucket, RI, offers very good traditional cash on cash return.
However, short-term rentals are not a profitable real estate investment strategy in Pawtucket, RI.
8. Santa Fe, NM
- Median Property Price: $365,000
- Traditional Rental Income: $2,340
- Traditional Cash on Cash Return: 6.3%
- Traditional Cap Rate: 6.3%
- Airbnb Rental Income: $1,650
- Airbnb Cash on Cash Return: 3.5%
- Airbnb Cap Rate: 3.5%
If your budget as an experienced real estate investor is a bit less limited, you could buy an investment property in Santa Fe, NM, which is the 8th among the best places for traditional rentals at the end of 2017.
But it is better not to get into Airbnb rentals in Santa Fe, NM.
9. Burien, WA
- Median Property Price: $389,000
- Traditional Rental Income: $2,500
- Traditional Cash on Cash Return: 5.6%
- Traditional Cap Rate: 5.6%
- Airbnb Rental Income: $2,150
- Airbnb Cash on Cash Return: 4.8%
- Airbnb Cap Rate: 4.8%
#9 on our list, according to data from Mashvisor’s investment property calculator, is Burien, WA, where the median property price is also less affordable than in other cities. Traditional rentals here yield good return on investment in the form of cash on cash return of 5.6%.
However, short-term rentals in Burien, WA have cash on cash return below 5%.
10. Venice, FL
- Median Property Price: $283,000
- Traditional Rental Income: $2,170
- Traditional Cash on Cash Return: 5.5%
- Traditional Cap Rate: 5.5%
- Airbnb Rental Income: $1,200
- Airbnb Cash on Cash Return: 2.1%
- Airbnb Cap Rate: 2.1%
Another excellent location to buy a rental property at the end of 2017 is Venice, FL, if you are in favor of the traditional rental strategy. The return on investment is very good for traditional rentals.
Once again though, Venice, FL is not the right location for Airbnb rentals at the moment.
11. Kansas City, MO
- Median Property Price: $243,000
- Traditional Rental Income: $1,820
- Traditional Cash on Cash Return: 5.4%
- Traditional Cap Rate: 5.4%
- Airbnb Rental Income: $1,820
- Airbnb Cash on Cash Return: 7.3%
- Airbnb Cap Rate: 7.3%
Yet another among the best places for traditional rentals in the US housing market is Kansas City, MO.
Actually, this is very good news for any beginner real estate investor willing to explore a different rental strategy. Airbnb rentals are very profitable in Kansas City, MO, so you could switch to the Airbnb rental strategy down the road if you figure out being a landlord of traditional rentals is not the right type of real estate investing business for you.
12. Scottsdale, AZ
- Median Property Price: $596,000
- Traditional Rental Income: $4,040
- Traditional Cash on Cash Return: 5.3%
- Traditional Cap Rate: 5.3%
- Airbnb Rental Income: $2,660
- Airbnb Cash on Cash Return: 2.4%
- Airbnb Cap Rate: 2.4%
If your budget as an experienced real estate investor is wider, you could consider traditional rentals in Scottsdale, AZ. The return on investment is very good because of the high traditional rental income, despite the relatively less affordable median property price.
Nonetheless, short-term rentals are not really an option in Scottsdale, AZ.
13.Cathedral City, CA
- Median Property Price: $297,000
- Traditional Rental Income: $2,130
- Traditional Cash on Cash Return: 5.3%
- Traditional Cap Rate: 5.3%
- Airbnb Rental Income: $2,370
- Airbnb Cash on Cash Return: 6.0%
- Airbnb Cap Rate: 6.0%
According to Mashvisor’s investment property calculator, Cathedral City, CA is a wonderful location to buy an investment property, for both traditional rentals and Airbnb rentals. The cash on cash return for either rental strategy is excellent.
14. Biloxi, MS
- Median Property Price: $190,000
- Traditional Rental Income: $1,280
- Traditional Cash on Cash Return: 5.2%
- Traditional Cap Rate: 5.2%
- Airbnb Rental Income: –
- Airbnb Cash on Cash Return: –
- Airbnb Cap Rate: –
#14 among the best places for traditional rentals (but not short-term rentals) is Biloxi, MS. The median property price here is very affordable, which drives the return on investment up.
15. Wareham, MA
- Median Property Price: $270,000
- Traditional Rental Income: $1,760
- Traditional Cash on Cash Return: 5.2%
- Traditional Cap Rate: 5.2%
- Airbnb Rental Income: $2,520
- Airbnb Cash on Cash Return: 7.8%
- Airbnb Cap Rate: 7.8%
If you are a beginner real estate investor, uncertain about your preferred rental strategy, think about Wareham, MA. According to data from Mashvisor’s investment property calculator, Wareham, MA is an excellent location for both traditional rentals and Airbnb rentals.
16. Hartford, CN
- Median Property Price: $139,000
- Traditional Rental Income: $1,530
- Traditional Cash on Cash Return: 5.1%
- Traditional Cap Rate: 5.1%
- Airbnb Rental Income: –
- Airbnb Cash on Cash Return: –
- Airbnb Cap Rate: –
If you are sure that traditional rentals are your favorite real estate investment strategy, you could go for Hartford, CN. Mashvisor’s investment property calculator forecasts good cash on cash return for the traditional rental strategy here.
17. Baltimore, MD
- Median Property Price: $247,000
- Traditional Rental Income: $1,630
- Traditional Cash on Cash Return: 5.0%
- Traditional Cap Rate: 5.0%
- Airbnb Rental Income: $2,000
- Airbnb Cash on Cash Return: 7.2%
- Airbnb Cap Rate: 7.2%
Baltimore, MD is not only one of the best places for traditional rentals in the US housing market at the end of 2017 but also an excellent location for Airbnb rentals at the moment.
18. Prairie Village, KS
- Median Property Price: $228,000
- Traditional Rental Income: $1,670
- Traditional Cash on Cash Return: 5.0%
- Traditional Cap Rate: 5.0%
- Airbnb Rental Income: $2,120
- Airbnb Cash on Cash Return: 7.2%
- Airbnb Cap Rate: 7.2%
Last but not least, real estate investors should consider Prairie Village, KS as well as a potential location for their next investment property purchase. You could use a rental property here for both traditional rentals and short-term rentals.
When you decide to enter the exciting world of real estate investing, you quickly realize that location is the most important factor for the success of your business. Thus, here we tried to help you by offering you the best places to invest in traditional rentals at the end of 2017, based on cash on cash return. To help you out even further, once you’ve selected your preferred location, you can search for available investment properties there through Mashvisor.