Which cities have the most promise for long-term rentals (cash flow)?

[Andrew Potievsky]

Hello everyone! 

I'm interested in buying my first investment rental property with the goal of maximizing cash flow (e.g. targeting multi-family where possible). I am in New York so I'm looking to buy out of state.

What are some of the most promising cities for multi-family rentals with a growing population/job market and ideally low risk of property tax creep? Additionally, are there any websites / apps that folks use to discover promising cities for RE investments?

Some areas i'm interested in:

1. Columbus, Ohio
2. Orlando
3. Jacksonville

I'm starting my journey with RE and I want to be careful and deliberate with my first buy.

[Eric Fernwood]

Hello @Andrew Potievsky,

When comparing locations, I always consider operating costs and other factors that can affect my ability to make a profit. I will begin by examining operating costs.

Operating Costs

Below is a comparison of income taxes, insurance, and property taxes for Ohio and Florida, along with Nevada as a reference point.

Sources:

• State average insurance cost
• State average property tax
• State Income Tax

To put this in perspective, below is the annual overhead cost for a $400,000 property.

To achieve the same net cash flow, a property in Columbus would have to generate almost $5,000 ($8447 - $3544) more in annual rent than one in Las Vegas due to higher operating costs.

Rent Control

Rent control can prevent you from increasing your rent to keep pace with inflation, limit your ability to select the best tenant, or remove a non-performing tenant cost-effectively and expeditiously. Below is a list of rent control.

• Columbus - Yes
• Orlando - Yes/[No](https://www.doorloop.com/laws/florida-rent-control-laws#:~:text=No%2C there are no Florida,doing so unless absolutely necessary.) - I found a statement saying that Orlando does have rent control and another one that the state does not permit it. So, I included both links
• Jacksonville - No
• Las Vegas - No

The above is a good start for comparing locations.

Selecting a Good Investment Location

On selecting an investment location - I recommend against following anyone's opinion on where to invest. Instead, do your own research. The process for selecting a positive cash flow city is straightforward.

Start with cities with a population over 1 million (Wikipedia) and then illuminate properties that fail any of the following additional criteria

• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Inflation compensating - Every time you go to the store, the same basket of goods costs more and more dollars. In order to have the additional dollars needed to pay inflated prices, rents must rise faster than inflation. Therefore, a critical location selection metric is that rents and prices are rising faster than inflation. Rents tend to lag behind prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent costs are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree
• Low disaster risk - When a tornado or other natural disaster strikes a city, it doesn't just obliterate individual properties. The entire community, including jobs, shopping, and retail, is destroyed. Your tenants won't wait for your property to be rebuilt in a year or two; they'll move immediately to a location where they can work and live today. Even if your insurance company rebuilds your property, there may be no one to rent it. Everyone in the community will have resettled in other locations, and there's no reason for employers, retail establishments, or people to move back. Locations hit by natural disasters may take many years or never recover. However, your mortgage, taxes, insurance, maintenance, and other expenses will continue without interruption. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area. Choose a location with low-cost homeowners insurance because they have the lowest risk of natural disasters. Insurance - ValuePenguin
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control.

At this point, you will have a small number of potential cities. The next step is to find a local investment team. Why is working with a local investment team critical?

Everything you learn from seminars, podcasts, books, and websites is general information. You will purchase a specific property in a specific location that is subject to specific local rental regulations. The only source of the hyperlocal information you need is a local investment team that has years of experience working with investors. Also, working with a local investment team costs no more than working with any other realtor so there is no disadvantage and every advantage to working with a local investment team.

Andrew, I hope this helps. If you have other questions, please DM me or post here and I will respond.