Best Markets for Purchasing Single-Family Rental Properties

By Stevie Duffin Updated on 4/4/2013

By Daniel Duffield

Purchasing a single-family home and renting it out can be considerably advantageous and financially prudent, however the monthly profits from such a venture will primarily be based on the location of the property and the dynamics of the housing market in which it is situated.

In order to aid investors in selecting the right markets, RealtyTrac recently disclosed a list of the top 20 single-family rental markets. At the top of this list, Memphis, TN constitutes the most advantageous housing market for prospective investors looking to buy a rental home.

In conducting the survey, RealtyTrac determined the top 20 markets by evaluating the median home sales price of three-bedroom residences, the average rent within the market, and returns on investments in the location in terms of both cash and mortgage purchases.

According to the results, in Memphis a median-sized home with three bedrooms sells for an average of $72,600, with the financed-purchase rate comprising 5.8%.

Investors who purchased these residences using cash saw this cap at 10.38%, or nearly double.

Considering the spread of markets, this top 20 list includes four cities in Florida, Phoenix, AZ, and two Michigan cities severely impacted by the recession and housing market bubble burst: Detroit and Saginaw.

Daren Blomquist, vice president of RealtyTrac, stated that, while locating a suitable rental property is challenging and requires much consideration, he believes that many profitable opportunities exist. According to Blomquist, many such prospects can be capitalized upon by conservative, individual investors who purchase rental properties that produce a satisfactory return on the investment, although he concedes that such purchases generally require much patience and steadfastness when sifting through the adverse deals.

Blomquist states that the top 20 markets selected by RealtyTrac constitute the most profitable opportunities to see an adequate return on investment for rental home purchases but admits that such opportunities can be found throughout the U.S. in the current market of relatively fair home prices, low mortgage rates, and a healthy rental market.

Top 5 Markets for Purchasing Single-Family Rental Properties

1.       Memphis, TN

2.       Saginaw, MI

3.       Toledo, OH

4.       Ocala, FL

5.       Las Vegas, NV

For the full list of markets, visit RealtyTrac.com.