Top 5 Markets to Build Rentals That Have Immediate Equity and Cash Flow!

Once you decide to build a real estate investment portfolio, you'll then need to find properties to invest in. While you can use the tried-and-true BRRRR technique to invest in rental real estate, recent real estate trends indicate that the better option is to build your own rental properties. While there are many reasons why you should take this approach, the main one is that it can offer immediate equity and cash flow. However, you must first identify the right markets to invest in. Read on to learn more about the top five markets for building rentals. 

Why You Should Build Rentals

While there are many advantages associated with building rentals, this technique is particularly beneficial for your portfolio because it avoids the drawbacks that come with investing in existing rental properties. 

The BRRRR strategy can be a costly one to implement if you happen to make a mistake. Let's say you purchase a fixer-upper for $150,000 that you hope to restore and renovate until it reaches a value of $250,000-$300,000.  

The issue with making renovations on this type of property is that the cost of doing so may be far higher than first estimated. It's common for more damage to be discovered after closing on the transaction, which may cause you to lose money on the deal in the long run. 

By constructing a rental property from scratch, you have complete control over what the finalized structure looks like. The risk of something going wrong during the construction process is relatively low, which should keep project costs from ballooning. Some of the other reasons why you should build rentals include the following:

• You can build the type of property that's most in demand among buyers
• Building a home can be more affordable than buying an existing one
• You can significantly reduce your taxable income by claiming depreciation on internal fixtures
• You'll receive equity immediately after construction if the property is worth more than it was before the process started

Identifying the Best Places to Invest In

Before focusing on the best markets to build rentals in, you should first know how to identify good real estate markets that support this strategy. Your personal investment goals should always be at the forefront of your mind when you make investment decisions. The three main components you should consider when searching for the right markets to invest in are:

• Population Growth
• Affordability
• Job growth

When looking at population growth, cities that are growing in population are appealing investment targets because they offer less risk. When you build and rent out a property in a place with an increasing population, you likely won't need to deal with vacancy issues on a regular basis. Higher growth usually means higher demand for housing, which is why you should look for this when searching for cities and towns to invest in. 

Job growth is also directly correlated with population growth. When the job market is strong, more people will be searching for rental housing. Along with identifying the number of jobs available in a specific location, you should also look at the median salary. If the median salary in the area is rising, demand for employees should also be high. 

As for affordability, you should consider how quickly you'll be able to earn back your initial investment. Even though many investors choose to place properties from NYC or San Francisco into their portfolio, home values in these areas are too high, which means that a single poorly performing property can hurt the entire portfolio. If you choose to focus on locations with a lower cost of living, you won't take on as much risk when building rentals. The best locations are ones that offer job growth, population growth, and affordability.

Five Best Markets to Build Rentals

Even though these markets are all relatively large cities, they are a good indicator of where you should invest. However, you shouldn't restrict yourself to the city limits. Many of the advantages of these locations are also present in the secondary markets that are close by. For example, Fairfield, Mason, and Independence are just a few secondary markets that offer reasonable housing prices and are less than 45 minutes away from Cincinnati, OH. Building a diverse investment portfolio means investing in numerous locations. 

Cincinnati, OH

Cincinnati is a fantastic real estate market that has had consistent appreciation rates since the onset of COVID-19. To understand how advantageous it can be to build rental properties in Cincinnati, keep in mind that the average home value in the U.S. is right around $410,000. In comparison, the median price for a Cincinnati property in July 2023 was $290,000, which means that you should be able to build rentals at a relatively low price. Since July 2022, home values have risen by more than 7%. 

Cincinnati is an appealing location because it offers plenty of job opportunities while still having a low cost of living. There are many Fortune 500 companies that have headquarters in Cincinnati, which include Kroger, Macy's, Procter & Gamble, and General Electric. With how popular the market is among businesses, it should continue to provide investors with favorable real estate opportunities in the coming years. 

With how much home values have been increasing as of late, the real estate market is still advantageous for sellers, which is a good thing for investors. Many potential buyers are being priced out of purchasing their dream homes because of high interest rates and poor loan terms. These would-be buyers will likely look towards rentals, which should allow you to meet their demand with the properties you build. 

Tampa, FL

There are many cities and towns in Florida that are showing strong trends in the real estate market. However, Tampa is likely at the top of this list. In 2015, Tampa's population was around 360,000. Today, the population is well over 390,000, which indicates that the location is appealing to renters and buyers alike. 

The high population growth in Tampa has resulted in home values increasing as well. The average monthly rent is around $1,923, while the price for a single-family home is just under $380,000. Even though home values haven't risen as dramatically in 2023 as they did in the previous two years, growth is steady. 

One reason why Tampa is a popular market is because the Tampa Bay area is the economic center of Florida. In fact, its local economy is worth around $160 billion. The Fortune 500 companies that have headquarters in Tampa include WellCare Health Plans, Publix Supermarkets, and Roper Technologies. When you're looking for the right markets to invest in, consider Tampa and some of the nearby secondary markets, such as Plant City and Wesley Chapel. 

San Antonio, TX

Since the COVID-19 pandemic, San Antonio has been one of the strongest real estate markets in the country. In 2021, the median home value was lower than $170,000. It's now around $100,000 higher, which is mainly due to the strong economy of the San Antonio metro area. If you invest in San Antonio or the surrounding cities, you can benefit from a rising population as well as low vacancy rates. 

As touched upon previously, a growing population often means that home values will rise. Even if they drop every now and then, they'll likely rebound and continue their ascent. This is definitely the case with San Antonio, which has a current population of 1.479 million. Just three years ago, there were around 40,000 fewer people living in San Antonio. Once you build a rental property, you should be able to quickly find tenants because of the growing population. 

Jacksonville, FL

Jacksonville is another market in Florida that you should consider investing in. There are many reasons why this market should be at the top of your list when you're looking for land to buy, which include everything from a strong job market to rising home values. In March 2023, property values were around $343,000. Since that time, values have increased by nearly 9% to $375,000, which indicates that demand for housing is still very high in Jacksonville. 

The city's population has also grown considerably in recent years. In 2013, their population was around 860,000. Since that time, the population has grown by more than 100,000 residents. Nearly every facet of this market is growing at the moment. When looking at population and total number of employees, the growth rates are well above the national average. When you're thinking of investing in Florida, destinations like Miami and Orlando might be more appealing to you at first glance. However, Jacksonville is better when you consider the latest real estate trends and how they should continue in the future. 

Birmingham, AL

Though oft overlooked by investors, Alabama is a great place to build rental properties for anyone who wishes to benefit from affordable land and rising property values. In November, the median listing price for a Birmingham home was around $185,000, which marks a year-over-year increase of nearly 16%. These trends indicate that home values will continue to rise for the foreseeable future, which means that any rental property you build will likely increase in value in the months and years after you finish construction. 

Since home values are rising rapidly in the area, you should also be able to benefit from high rental rates. Keep in mind that Birmingham's unemployment rate is below 3%, which is better than the national average. With decent population growth and a diversified economy, Birmingham is one of the better options for any investor who wants to gain access to immediate equity and strong cash flow after they build a property. 

When you're considering your options, there are many factors you should take into account. First, determine which of these markets offers home values at a price you can afford. While you'll be buying the land, the costs of building a rental home will likely be similar to what you would pay for a property in the vicinity. Each location in this guide provides increasing home values, strong economies, and many other advantages that should allow you to build well-performing rentals that will grow your investment portfolio for years to come.

These markets are relatively affordable while also having high year-over-year increases to property values, which means that you have the unique opportunity to build rentals that will likely increase in value immediately after you finish construction. Before you begin construction on an investment property, consider your options when it comes to location. If you have any questions about building rentals or would like help in finding the right piece of land to buy, call Rent to Retirement today.