Top 10 U.S. Cities for Above Average Returns (5 minute-read)

#1 = Phoenix, Arizona.

There are many factors in passive apartment ownership but one very important one is the ability to choose a market that supports the rent growth, in-migration, and job growth.  Don’t forget that the market within the city as a ‘whole’ can be misleading because there are sub-markets that are outliers that lead rental income rates and some that fall much lower than average.  The outlying cities in the same area may have much better returns versus the inner-city area…but it depends.

Newmark Knight Frank published a 12-month trailing report that captured US Multifamily Capital Markets for the first quarter of 2020.  The report showed returns of 5.10% as an average for the last year in multifamily apartment communities…that is not very enticing.  Why not just invest in something else other than apartment communities that is potentially not as information and sub-market intensive?  The 5.10% rate of return includes all markets; some may have 25% returns and others may have losses.  That is why I think that metric is fairly worthless when looking to invest in multifamily apartment real estate because the data doesn’t apply to the city, sub-market, and street that you are researching.  If you chose to invest in an REIT or a mutual fund that invests in apartment real estate across the entire US market, the 5.1% return rate may match reality in your portfolio, but not mine.

If a market could be chosen on the edge of projected growth with a 5-10 year time horizon, there are many things that could work in your favor to help the amount of rental income the property receives.  The rental income would drive the valuation of the apartments in the area…higher.  If done correctly, it is not difficult to achieve an 8-12% return conservatively.  Additionally, the historical Annual Rate-of-Return on Real-Estate Investments is researched HERE in the Viper Ventures blog with additional factors.

Viper Ventures LLC strictly focuses on property located in Phoenix, AZ, and the surrounding areas.  We focus on areas that are in the path of growth and have bought the majority of our properties off-market and through other sources that gives us an entry price that is able to support our renovation costs, higher after repair value, and increased rental income rates.

There are sub-markets within the larger Phoenix area that do not fit our investment strategy due to:

  • Property developers overbuilding apartments and thereby creating an excess of available units (Tempe, AZ, around Arizona State University is massively overbuilt in 2020)
  • Scottsdale has high tax rates and very expensive property due to the location
  • 7th Ave to 7th Street in the downtown Phoenix area has been overhauled by investors in the past 10-years; property values skyrocketed. The deferred maintenance on many buildings could drive a business plan that isn’t profitable due to renovation costs.

Areas in Phoenix that are experiencing increased growth that are good places to start due to in-migration, business, and affordable rental rates for people looking to save a few dollars:

  • I-17 north of Indian School Rd
  • The surrounding area near Grand Canyon University
  • Glendale, AZ, is not the nicest place to live but years ago it wasn’t developed as much as other parts of Phoenix and has a lack of available apartment communities compared to other parts of Phoenix
  • Any area that is close to 7th Ave and 7th Street has seen increased growth as developers and investors move in to capitalize on the surrounding area

With that being said, there are sub-markets within all of the above good-and-bad areas that could be non-profitable.  If the area has many properties that are in massive disrepair and landlords that allow tenants to rent without completing a background check, your property could be affected by the surrounding negative influence.  If the path of growth is close and there are others investors repairing, renovating, and maintaining their properties, the business plan and rent growth could be realized.

What markets are leading the overall growth in rental income collections?

Realize that these cities are measuring the area as a whole and give an idea of growth but don’t measure all the little intricacies of the sub-markets and streets that could provide returns much higher.

10. Seattle, WA

Population: 637,850

Total Annual Return: 6.02%

Average 2 Bedroom Rent: $1,690

Mean Population Income: $67,365

9. Palm Beach, FL

Population: 8,344

Total Annual Return: 6.04%

Average 2 Bedroom Rent: $1,418

Mean Population Income: $105,700

8. Minneapolis, MN

Population: 394,424

Total Annual Return: 6.70%

Average 2 Bedroom Rent: $1,150

Mean Population Income: $50,767

7. Atlanta, GA

Population: 440,641

Total Annual Return: 6.80%

Average 2 Bedroom Rent: $1,190

Mean Population Income: $46,439

6. Denver, CO

Population: 633,777

Total Annual Return: 7.73%

Average 2 Bedroom Rent: $1,350

Mean Population Income: $51,800

5. Charlotte, NC

Population: 774,807

Total Annual Return: 8.07%

Average 2 Bedroom Rent: $1,140

Mean Population Income: $53,274

4. Tampa, FL

Population: 348,934

Total Annual Return: 8.24%

Average 2 Bedroom Rent: $1,280

Mean Population Income: $43,740

3. Orlando, FL

Population: 250,224

Total Annual Return: 8.54%

Average 2 Bedroom Rent: $1,280

Mean Population Income: $41,901

2. Austin, TX

Population: 864,218

Total Annual Return: 8.69%

Average 2 Bedroom Rent: $1,461

Mean Population Income: $55,216

1. Phoenix, AZ

Population: 1,490,758

Total Annual Return: 13.73%

Average 2 Bedroom Rent: $1,100

Mean Population Income: $46,881

Conclusion

What do the numbers mean?

  • Population centers vary widely
  • Average income is also helpful when calculating what the city is capable
    • Other than Seattle and Palm Beach, the average income of all these cities is around $40,000-$50,000

If you are a of a studious nature, that is good because you will put in the time to research the US market and your investment.  Research, education, study, and information only make you money if those pieces of knowledge are put into ACTION.

If you want an easy step-by-step checklist to help you with researching any real estate market, my book, “Single Seat Investor” is available for purchase on Amazon Prime for less than $10.  This short book is easily read in 60-90 minutes and all proceeds are donated to support the Anna Schindler Cancer Foundation.

Buy the book here on Amazon Prime and start your path to financial freedom and WEALTH today!

Please feel free to comment below or contact me HERE with any questions.

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