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The best US cities to invest in a rental property – Ravalli Republic

Photo Credit: Konstantin L / Shutterstock

The frenzied real estate market over the last two years has been challenging for many homebuyers, but for those who have been able to buy, the return on investment has been strong. Homes are appreciating at a record pace, with sale prices rising around 20% from 2020 to 2021.

With these rapid increases in home values, some investors are looking to rental properties as a source of potential returns. While many of those capitalizing on the current state of the market are institutional investors, the current market conditions could present opportunities for small-scale investors as well. However, these would-be landlords must assess how rapid shifts in the value of real estate could affect their investments in the short and long term.

Increasing home prices have been a major story since the pandemic began, but home prices have shown a fair amount of volatility over time, especially in comparison to rent. For example, prices rose at a fairly rapid pace during the real estate bubble of the early to mid-2000s but collapsed when the bubble burst. Home prices then had an uneven recovery until the recent spike beginning in 2020. For rents, meanwhile, the rate of growth year-over-year has held steady between around 2 and 5 percent outside of a dip during the Great Recession and over the last year or so.

The relative stability of rents compared to the current rise in home prices will affect how potential real estate investors assess properties. As sale prices increase, the initial investment and ongoing costs increase as well, which can limit the investment’s cash flow should rents fail to keep pace. On the other hand, rapid appreciation in home values can increase the investor’s overall return when the property is eventually sold.

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