While many investors tend to focus on potential cash flow when investing in real estate, this is not the only advantage of buying rental properties. Apart from cash flow, real estate investments offer a range of other benefits including leverage, capital appreciation, and tax breaks. Of course, you should invest in cash flow as the property will pay for itself and generate some extra monthly income, thus helping you make money in the short run. Even still, you should not neglect real estate appreciation which assures that you make money in the long term. While your main focus will depend on your investment goals, a combination of both cash flow and appreciation is what makes a real estate investment worthwhile.
In this article, we are going to look into the best cities for real estate appreciation in the US housing market in 2021. But before we get into that, let’s first talk about what real estate appreciation means and why it is important for real estate investors.
Related: Cash Flow vs. Appreciation: What Should Drive Your Real Estate Investment Decision?
What Is Appreciation in Real Estate?
Real estate appreciation is the increase in the value of a piece of real estate over a period of time. It is calculated based on the fair market value of the home. Appreciation in real estate is driven by a number of factors such as location, overall economic growth, demand and supply, government policies, and cost of borrowing (interest rates). Investors can also increase home values through strategic renovations. The more your property appreciates in price, the more profit you’ll earn when you sell it.
Property appreciation may also lead to an increase in the monthly rental income and thus your return on investment. If you have a mortgage, an increase in the value of your property would also increase your home equity. Average real estate appreciation varies drastically by location. Therefore, finding markets with high appreciation rates requires a thorough real estate market analysis.
Real Estate Appreciation in the US Housing Market 2021
Despite the economic challenges brought by the Covid-19 pandemic, average real estate appreciation grew in 2020. This was partly because mortgage rates dropped to record laws, thus increasing buyer demand. So, will housing prices go down in 2021?
Well, while home prices in some areas may drop, the consensus among real estate experts is that the US real estate market as a whole will experience a surge in home prices. With the high buyer demand due to low interest rates and low supply, real estate prices are expected to continue rising in 2021 but at a slower pace than last year.
Related: 8 Steps to Becoming a Landlord
Best Cities for Real Estate Appreciation in 2021
To make your real estate investment decisions easier and more confident, we have provided you with a list of the best cities for real estate appreciation in 2021 in the US housing market.
However, we understand that for you to find the best cities for real estate investment, you need to consider more than just the appreciation potential. For this reason, we’ll also provide you with key market data from Mashvisor such as median house price, average rental income, and the average return on investment (cash on cash return). This data comes from reliable publicly available sources and has been computed through our machine-learning algorithms. With all this information, you’ll be able to locate high real estate appreciation markets that fit your budget and have a high average rate of return, whether you’re interested in a traditional or Airbnb investment property.
Here are the 10 cities that are expected to experience the most year-to-year price growth in 2021, according to Realtor.com, together with city data from Mashvisor:
1. San Jose, California
San Jose is expected to experience strong real estate appreciation in 2021
- Real Estate Appreciation Rate: 10.8%
- Median Property Price: $981,729
- Price per Square Foot: $670
- Monthly Traditional Rental Income: $2,864
- Price to Rent Ratio: 29
- Traditional Cash on Cash Return: 1.3%
- Monthly Airbnb Rental Income: $3,040
- Airbnb Daily Rate: $171
- Airbnb Occupancy Rate: 56.7%
- Airbnb Cash on Cash Return: 0.6%
2. Seattle, Washington
- Real Estate Appreciation Rate: 9.7%
- Median Property Price: $714,850
- Price per Square Foot: $531
- Monthly Traditional Rental Income: $2,315
- Price to Rent Ratio: 26
- Traditional Cash on Cash Return: 2.1%
- Monthly Airbnb Rental Income: $2,249
- Airbnb Daily Rate: $144
- Airbnb Occupancy Rate: 51.1%
- Airbnb Cash on Cash Return: 0.9%
3. Boise, Idaho
- Real Estate Appreciation Rate: 9.1%
- Median Property Price: $686,854
- Price per Square Foot: $314
- Monthly Traditional Rental Income: $1,267
- Price to Rent Ratio: 45
- Traditional Cash on Cash Return: 0.7%
- Monthly Airbnb Rental Income: $1,936
- Airbnb Daily Rate: $105
- Airbnb Occupancy Rate: 57.8%
- Airbnb Cash on Cash Return: 1.0%
4. Fresno, California
- Real Estate Appreciation Rate: 8.5%
- Median Property Price: $348,134
- Price per Square Foot: $191
- Monthly Traditional Rental Income: $1,122
- Price to Rent Ratio: 44
- Traditional Cash on Cash Return: 1.74%
- Monthly Airbnb Rental Income: $2,388
- Airbnb Daily Rate: $115
- Airbnb Occupancy Rate: 70.3%
- Airbnb Cash on Cash Return: 4.0%
5. Bridgeport, Connecticut
- Real Estate Appreciation Rate: 7.8%
- Median Property Price: $273,663
- Price per Square Foot: $202
- Monthly Traditional Rental Income: $1,546
- Price to Rent Ratio: 15
- Traditional Cash on Cash Return: 1.7%
- Monthly Airbnb Rental Income: $3,078
- Airbnb Daily Rate: $151
- Airbnb Occupancy Rate: 63.8%
- Airbnb Cash on Cash Return: 4.6%
6. Columbus, Ohio
- Real Estate Appreciation Rate: 7.6%
- Median Property Price: $272,796
- Price per Square Foot: $166
- Monthly Traditional Rental Income: $1,204
- Price to Rent Ratio: 19
- Traditional Cash on Cash Return: 2.9%
- Monthly Airbnb Rental Income: $1,940
- Airbnb Daily Rate: $127
- Airbnb Occupancy Rate: 60.6%
- Airbnb Cash on Cash Return: 3.9%
7. Tampa, Florida
- Real Estate Appreciation Rate: 7.5%
- Median Property Price: $488,753
- Price per Square Foot: $251
- Monthly Traditional Rental Income: $1,766
- Price to Rent Ratio: 23
- Traditional Cash on Cash Return: 2.7%
- Monthly Airbnb Rental Income: $2,037
- Airbnb Daily Rate: $128
- Airbnb Occupancy Rate: 50.7%
- Airbnb Cash on Cash Return: 2.1%
8. Sacramento, California
- Real Estate Appreciation Rate: 7.4%
- Median Property Price: $411,419
- Price per Square Foot: $278
- Monthly Traditional Rental Income: $1542
- Price to Rent Ratio: 22
- Traditional Cash on Cash Return: 2.2%
- Monthly Airbnb Rental Income: $3,311
- Airbnb Daily Rate: $126
- Airbnb Occupancy Rate: 73.1%
- Airbnb Cash on Cash Return: 4.6%
9. Phoenix, Arizona
- Real Estate Appreciation Rate: 7.0%
- Median Property Price: $465,610
- Price per Square Foot: $243
- Monthly Traditional Rental Income: $1,528
- Price to Rent Ratio: 25
- Traditional Cash on Cash Return: 2.3%
- Monthly Airbnb Rental Income: $2,569
- Airbnb Daily Rate: $171
- Airbnb Occupancy Rate: 64.1%
- Airbnb Cash on Cash Return: 3.2%
10. Arlington, Washington
- Real Estate Appreciation Rate: 6.7%
- Median Property Price: $523,513
- Price per Square Foot: $293
- Monthly Traditional Rental Income: $2,458
- Price to Rent Ratio: 18
- Traditional Cash on Cash Return: 3.7%
- Monthly Airbnb Rental Income: $2,352
- Airbnb Daily Rate: $180
- Airbnb Occupancy Rate: 55.2%
- Airbnb Cash on Cash Return: 1.1%
0Although this data gives you some insight into what to expect, there’s no surefire way to predict real estate appreciation. While you can control some aspects of real appreciation like the location of your investment property and the condition of the property, the real estate market trends are hard to predict. For instance, an unexpected spike in interest rates would course an increase in the cost of lending and, consequently, lower the demand for real estate. This would hinder home appreciation.
Related: How to Choose a Real Estate Market to Invest In
The Bottom Line
Despite the effects of the Covid-19 pandemic on the economy, real estate appreciation was experienced in much of the country in 2020, and the trend is expected to continue in 2021. However, it’s likely that some markets will experience a drop in the average house price. To increase the odds of success, locating the best cities for real estate appreciation in 2021 is important.
Remember, finding a target city for your real estate investment is not the end. You still need to locate the best neighborhood and the most profitable investment property within your budget. Be sure to use Mashvisor’s real estate investment tools to conduct a quick and comprehensive neighborhood analysis and investment property analysis.
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