Real estate exit strategies are seemingly limitless, and each can provide savvy entrepreneurs with a reliable stream of income. In fact, a diversified portfolio is one of the safest investments you can make. It is not uncommon for a single investor to try their hand at rehabs, wholesales, and everything in between. Of particular interest, however, is the prospect of passive income. By definition, passive income is income not linked to or derived from the time you put into work. Passive income is accumulated automatically, regardless of how many hours you work, or whether you work at all. To be financially free, and to ever be able to retire, you need passive income.
Having said that, there may be no better time to invest in passive income real estate. Rental rates are higher than they have ever been and housing remains too expensive for the majority of millennials. That is great news for anyone considering investing in a passive income property. Renting out a home can be the best way to earn extra cash while building equity. Think about it – renters can pay down your mortgage while you capitalize on growing equity. Throw in a real estate management company and you will literally have nothing to worry about.
Fortunately, just about anyone can become a passive income real estate investor. However, to truly succeed, you need to have an advantage over your competition. With that in mind, we have compiled a list of the top 10 places to own rental property. While they may not represent the hottest markets in the United States, these small metros have proven to be conducive to an investor’s bottom line.
Top 10 Markets To Be A Landlord
Zillow’s Director of Product Management Carey Armstrong presented an overview of rental market trends across the nation. Using Zillow data, she looked at listing performance and local rental trends to explain where property managers should be posting listings and what information they need to include to get the best results. Her findings identified the following cities as the best places to be a landlord:
10.) Memphis, Tennessee
9.) Indianapolis, Indiana
8.) Dallas-Fort Worth, Texas
7.) Tampa, Florida
6.) Rochester, New York
5.) Denver, Colorado
4.) Cincinnati, Ohio
3.) Tulsa, Oklahoma
2.) Miami-Fort Lauderdale, Florida
1.) Oklahoma City, Oklahoma
Coming in at number one on the list, Oklahoma City has proven to be the best metro when it comes to short-term, month-to-month profitability. Conversely, if you are of the long-term mindset, metros in more expensive areas may be more to your liking. Passive income investors that are more interested in long-term returns are advised to look into more expensive markets on the West Coast like San Francisco, San Diego and Los Angeles.
For the sake of this article, however, we are focusing on smaller investors in less saturated markets. Accordingly, smaller markets will harbor a different exit strategy.
“When deciding if they should sell their home or rent it out, most mom-and-pop landlords are mainly concerned about whether or not they’ll be able to cover their mortgage — they simply can’t absorb monthly losses like professional investors,” said Zillow Chief Economist Dr. Stan Humphries. “However, the greatest returns are actually in markets like San Jose and San Francisco where there are short-term monthly losses, but the long-term earned equity makes them the best markets to invest in.”
Rents are on the rise across the country despite new inventory becoming available. Steady rent growth in the last few years has made rental property a smart investment in a number of metros. Owners of rental properties in Oklahoma City, for example, can expect to make a considerable amount of money from investing in a passive income portfolio. Oklahoma City landlords average $536 a month, or $6,432 a year, in rental income after deducting monthly mortgage payments (if they purchased their home during the recession).
Again, investors in long-term profits should look to the West Coast – San Jose in particular. San Jose landlords make the most rental income: $8,927 per month or $107,124 per year. Keep in mind that when looking at long-term profits, tax benefits and accumulated home equity are also taken into account, and the majority of profits aren’t realized until the property is sold.