It’s well-known having an investment property in a big, expensive city is quite a challenge (sometimes impossible) due to high home prices and the inability to follow the one percent rule. But our team decided to dig a little deeper into some of the country’s major cities and calculate their cash on cash returns. We found taking the leap in the big cities can definitely pay off – both with traditional and Airbnb investments.
We analyzed over 20 major U.S. cities’ average cash on cash returns and then selected the top cities and neighborhood with the highest returns based on number of listed properties and some other statistics.
1. Atlanta
Atlanta is headquarters for some of the most well-known companies making it a great job market and attractive to money-making tenants. Some companies include AT&T, Coca-Cola, Delta Airlines, and UPS. The job market is diverse and is one of top business cities. Atlanta has one of the largest populations of college graduates and is being flocked by fresh graduates looking for jobs and housing. Besides the many job opportunities, Atlanta has a unique culture – a mix of of Southern charm, history, and urbanity. Tourists enjoy festivals, street-art, diverse food, and of course,the Atlanta Falcons.
Buying an income property in Atlanta could be a dream for investors with the low home prices and highly educated, employed tenants. It’s one of the most visited cities in America, making it an even better Airbnb investment, based on cash flow. In 2015, investors made 16.5% returns in 2015 from a mix of cash flow and appreciation.
City Average Traditional CoC Return: 6.58%
City Average Airbnb CoC Return: 10.04%
Top Neighborhood: Lindridge – Martin Manor
Neighborhood Average Traditional CoC Return: 12.08%
Neighborhood Average Airbnb CoC Return: 17.73%
Related: How To Live For Free in the Most Expensive City in America
2. Saint Louis
St. Louis is also home to several big companies including Enterprise Rent-A-Car and Express Scripts. In 2015, St. Louis was listed as a one of the top 10 cities for creating a startup company based on capital, affordability, early-stage success, and community.
St. Louis has one of the best markets for property tax at a low 0.43%. Homes are fairly well-priced and the housing market is stable. The stability is due to its manufacturing, trade, transportation, and tourism industries. Investors here can expect to appreciate well. If you’re considering St. Louis, act now because the market is picking up. Homes are being sold, there is less competition amongst sellers, buyers and sellers are motivated, and closings are doing well. Right now, it’s a buyer’s market.
City Average Traditional CoC Return: 4.28%
City Average Airbnb CoC Return: 14.33%
Top Neighborhood: Old North St. Louis
Neighborhood Average Traditional Coc Return: 17.41%
Neighborhood Average Airbnb CoC Return: 28.22%
3. Las Vegas
Las Vegas has certainly become a real estate icon in recent years, for several reasons. Firstly, properties are “cheap.” The median home price is $203,000 which is less than the national average by $14,000. Las Vegas went through a three-year period in which appreciation levels skyrocketed, paving pathways to success for investors. In 2013, homes were appreciating at 65.4% while they are currently at 11.6%.
The market in Vegas has been stable in the past five years, and local and international investors have been taking advantage of the buy-and-hold market. While home prices are on the lower side, rent is high – which is why Vegas is considered a place to buy and not to rent. The high rental rates could be the underlying reason to why short-term renting on Airbnb has been very lucrative for Airbnb investment properties in Vegas. The unemployment rate is above the national average at at 7.1%. This may not bring the best long-term tenants but could perform well through Airbnb.
City Average Traditional CoC Return: 3.53%
City Average Airbnb CoC Return: 11.97%
Top Neighborhood: Downtown
Neighborhood Average Traditional CoC Return: 8.91%
Neighborhood Average Airbnb CoC Return: 17.13%
Related: 6 Reasons For The Growth Of The Airbnb Investment Property
4. Charlotte
In late 2015, Home Union completed a study revealing the top 10 investment markets for single-family rentals. Charlotte, aka,“Queen City” was listed as #1 because of the job market growth. Of the 10 cities in the study, Charlotte came in third for best job-growth rate out of the top 55 metropolitan statistical areas. The city also ranked #21 in investment home price and #27 in gross rental yield.
Charlotte is also a major financial city. The major industries are financial services, motorsports, and energy. You might be surprised to know that Charlotte is now the second largest banking center in the U.S. after New York City. Forbes listed Charlotte as #14 for on its 2015 list for Best Places for Business and Careers.
Home prices are relatively low and Charlotte alone has over eight colleges and universities – making it easy to find tenants.
City Average Traditional CoC Return: 2.95%
City Average Airbnb CoC Return: 8.87%
Top Neighborhood: Revolution Park
Neighborhood Average Traditional CoC Return: 9.74%
Neighborhood Average Airbnb CoC Return: 47.44%
5. Washington, D.C.
Half a million dollars might buy a nice one-bedroom apartment in D.C. or you could rent it for $2,500/month. Why would anyone want to invest here with these home prices and high rental rates? Well, high rental rates can mean big returns for investors. In the D.C .and Northern Virginia area, there are over a dozen colleges and universities with students digging for off-campus housing. A furnished bedroom in D.C. can rent out for $900 or $1,000 per month!
So in this case, the home prices here aren’t as ridiculous as San Francisco or New York City but the rental rates are significant. It’s also a touristy city which means an optimal location for an Airbnb investment property. The top neighborhood listed here gives investors the opportunities to buy low and appreciate well, unlike other neighborhoods in D.C.
Investing in D.C. takes extra creativity and research. Investors who bought properties in 2009 did well but the opportunities are a bit harder to find these days, but are still out there.
City Average Traditional CoC Return: 2.81%
City Average Airbnb CoC Return: 4.33%
Top Neighborhood: Skyland
Neighborhood Average Traditional CoC Return: 14.52%
Neighborhood Average Airbnb CoC Return: 38.36%
Related: Real Estate Investing Beyond the 20 Mile Radius
Mashvisor provides analytics for any city you inquire about when on your property search. If you can’t find your city on our website, you can request data by emailing advisor@mashvisor.com. We’ll help you find the highest performing neighborhoods, properties, and optimal rental strategy based on the comparative and predictive data in your area.
Where have you invested before? What cities would you recommend? Do you have any rental properties in major cities?