The Top 20 Cities to Buy Affordable B Class Rental Properties

Out-of-state investing is on your radar, now where should you invest?

This is probably the number one question I get asked. Where is the best place to buy? The answer is…it depends on your goals!

In this guide, I am going to outline four things that you must consider when making the leap into a new geographic investment territory. Plus, I am going to list the top 20 cities to buy affordable B-class rental properties.

No matter why you’re considering a new long-distance geographic market, looking to invest beyond the market(s) you’re familiar with must be done intelligently, objectively and strategically if you want to succeed.

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What Is Is The Best Market For Rental Real Estate?

For two years, I asked this question to other investors who all gave me their opinions.

Quite frankly, I couldn’t get a straight answer and so I’ve been where you are, which sucks. And let’s be honest, picking a market you’re unfamiliar with can be very confusing. It can also be a bit intimidating.  

If you listen to my Bigger Pockets podcast, I talk about how I googled the top 10 cash-flow markets in the US and then drove around in the only one I had ever been to looking for a good submarket, Kansas City.

Today I own 50+ doors in Kansas City!

However, after several weeks of exhausting myself in the car I thought to myself, there must be a better way, right? RIGHT?!

The former scientist in me asked… ‘What about a large meta-analysis of census blocks and tracts? Certainly someone has overlaid all the factors that matter, such as growth, crime, rent and schools? Where can I find this data?’ Please someone take my  money to solve this problem!

Not only did I end up empty-handed, I struggled mightily entering Kansas City that first year.

These frustrations and challenges forced me to develop my own detailed methodology, which I call the D.I.S.C.E.R.N.™ Method.

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Here are the four steps I used to deduce for the best affordable, growing, out of state markets:  

1. Filter for Metropolitan Statistical Areas (MSAs) that have a major airport (1M or more flights per year) within 50 miles. Additionally, ensure that there is a population of 150k+ people. This cuts rural areas of the country that are not near major airports.
2. I find it impractical to invest in out-of-state areas where daily flights are not available and my experience is that not having a major airport is a barrier to large job and population growth.
3. Looking at MSA’s, I only select zip codes that have at least 3,000 housing units (target-rich environment) and a median home value of $100-250k. I also select only zip codes that have a median household income of at least 30k and a population growth rate from 2010-2019 greater than zero.
   
   There must also be a forecasted population growth rate 2019-2024 greater than zero. I’m essentially cutting out anywhere with negative population growth over the last 10 years and looking for areas where the population is stable to growing in the next 5 years.
4. I then take all of the zip codes that meet the above criteria and total them by housing units in the MSA. The result is a list of MSAs that have the greatest number of housing units in zip codes with no population loss, median household incomes over 30k, and median home values of $100-250k.
5. If you can buy for below replacement cost (what it costs to build new) per/square foot in these markets, you can’t go wrong!
   
   The population growth creates the demand and new construction is more expensive than existing stock, so it can’t compete. In order to calculate the replacement cost you need to know the ballpark cost per/square feet of land and construction including soft costs on new development.
   
   In many coastal CA markets, it’s around $300/square foot on the low end but half of that cost is the land. So in many of the markets on this list the replacement cost is approximately $150/square foot. It really depends on the location but you can use $150-$200 as a ballpark.
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Now if you’ve read this far, it’s safe to assume that you are an aspiring long-distance real estate investor, so go down this list and look at your options.

From there, your next step is to drill down into the submarkets that are in these MSAs and start looking at good deals. Now, you might be asking yourself, how do I know what submarkets are best once I’ve picked my city?

Simple. Go to VestMap.com and run a free report. VestMap is the technology company that I built from my need to drill down to census blocks and tracts within submarkets, so that I could quickly make objective data-driven decisions. This tool has saved me so much time flying into new cities and driving around neighborhoods scouring for deals.

VestMap gives you location-specific information down to the census block group, or in other words, it’s very small. You can get detailed location information for an exact property location, including: crime ratings, schools and rents.

You can also see forecasted population growth, demographic group, and median household income for that exact location.

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Methodology #1: Here is the list ranked by most housing units in zip codes that meet the criteria I laid out in the four steps above. Although some of these cities might be ‘expensive’ they still have affordable pockets with a lot of housing stock. Gotta love data!

1. Houston, TX
2. San Antonio, TX
3. Las Vegas, NV
4. Philadelphia, PA
5. Indianapolis, IN
6. Jacksonville, FL
7. Phoenix, AZ
8. Tucson, AZ
9. Orlando, FL
10. Fort Worth, TX
11. Charlotte, NC
12. Minneapolis, MN
13. Columbus, OH
14. Miami, FL
15. Louisville, KY
16. Dallas, TX
17. Kansas City, MO
18. Oklahoma City, OK
19. Omaha, NE
20. Albuquerque, NM

Now maybe you’re saying to yourself, ‘But Lee, I only want to invest where there is massive population growth! My goal is to cash in on all sorts of benefits correlated with rising demand like market appreciation and rent appreciation.’

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No problem! Here are the 20 cities (Methodology #2) where the forecasted population growth is 2X the national average. The major growth centers of the US are in Texas, Florida, Arizona, and North Carolina with a little bit of Tennessee and South Carolina thrown in. So that I am crystal clear, the below cities are ranked by the number of housing units in zip codes that have 2X the national average population growth.

1. Charlotte, NC
2. Austin, TX
3. Orlando, FL
4. San Antonio, TX
5. Houston, TX
6. Fort Worth, TX
7. Raleigh, NC
8. Jacksonville, FL
9. Kissimmee, FL
10. Murfreesboro, TN
11. Phoenix, AZ
12. Mesa, AZ
13. Spring, TX
14. Summerville, SC
15. Humble, TX
16. Rock Hill, SC
17. Concord, NC
18. Lexington, SC
19. Conroe, TX
20. Katy, TX

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What do you do once you pick the market? That is where long-distance RE investing comes in. This has already been written about extensively, so I recommend you pick up the book Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties by David Greene.

The goal of this article is to cut out the guesswork in finding growing affordable markets to buy rental properties in. Did you find this useful? Let us know!

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Oh, and if you forgot already, no problem, here is your second reminder to let us do the heavy lifting for you! The first one’s on us. Go to VestMap.com and run a free report.

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