High-Yield Property Investments: 5 Best States to Invest in Real Estate

by | Mar 5, 2024 | blog

Are you seeking real estate investments with rental income potential and tax advantages in a ripe market? Or do you want to leverage the burgeoning rise of short-term rental properties with multiple investments across tourist hotspots? Investing in real estate, particularly rental properties, offers a formidable hedge against inflation.
Through fixed-rate mortgages, your interest payments can remain stable while rental income has the potential to grow, harnessing the long-term advantages of both inflation and appreciation. Sun Belt cities, known for their enviable quality of life and favorable pricing, are magnets for renters, buyers, and property investors. Key cities like Austin, Raleigh, Charlotte, Dallas, Tampa, and Nashville continue to shine.
However, the US real estate market is far from static, as many formerly top-performing markets like Phoenix, Denver, and Las Vegas saw double-digit dips. Conversely, economically stable cities in the Midwest and South Central U.S., like Omaha, Lincoln, Lexington, and Louisville, are gaining traction. Rental investors and property managers stand to benefit from the higher capitalization rates and steady rental growth, especially in the Midwest, South Central U.S., and smaller cities beyond the major Sun Belt markets.

Read on to explore the best states to invest in real estate based on property values, tax regimes, and other crucial factors.

Factors to Consider: Identifying the Best States to Invest

Investors must conduct thorough research and analysis to pinpoint states that align with their investment goals and strategies. These factors contribute to the overall investment landscape, influencing potential returns and long-term success in the real estate market.

Economic Stability and Growth

Selecting a state with a robust and steadily growing economy is pivotal for real estate investors. States experiencing consistent economic growth can offer more rental opportunities and a favorable environment for property appreciation.

Population Growth and Demographics

A thriving population can indicate a healthy real estate market. States witnessing net positive migration, particularly across vibrant cities, are prime locations for rental property investments. It signifies a higher demand for rental accommodations, providing a broader pool of potential tenants.

Job Market and Employment Rates

States with a flourishing job market and low unemployment rates are magnets for real estate investors. Job opportunities attract individuals and families, ensuring a steady stream of potential tenants. Investing in a state with a stable job market can lead to sustained rental income.

Affordability and House Prices

Examining the affordability of housing markets is crucial. Opt for states where property prices are on an upward trajectory but haven’t yet peaked. This allows for better investment potential, avoiding saturated markets with high-priced properties.

Property Taxes

Considering property tax rates is crucial for maximizing ROI. Look for states with reasonable property tax rates relative to rental income potential. Striking a balance between low taxes and favorable rental rates may identify the best state for real estate investment.

Landlord-Tenant Laws

Understanding the legal framework for landlord-tenant relationships is vital. Opt for states with laws that strike a reasonable balance between protecting tenant rights and enabling efficient property management. Favorable eviction processes can be crucial in dealing with problematic tenants.

Best states to invest in real estate investing, investment property taxes, rental property investment, invest in real estate investing, median household income tax

1. Florida: The Sunshine State

Florida’s real estate market is a dynamic landscape marked by consistent growth. In September, the state witnessed a 2.7% year-over-year surge in home prices, reflecting the robust demand for properties. This upward price trajectory indicates the region’s high desirability of real estate. Moreover, the state’s warm climate and relatively low cost of living have established it as an enticing destination for retirees and young professionals.

In August 2023, the median sale price in Florida was $415,000, showcasing a 2% increase from the previous year. This figure slightly surpasses the national median, which, as of August, was $407,100. Buyers typically paid 98.5% of a home’s list price in August 2022, which has seen a 1% dip to 97.5% this year, indicating that buyers may have gained more leverage in the market.

Key Cities and Regions for Investment

Florida offers a diverse range of promising cities for real estate investment. Orlando and Miami, in particular, emerge as standout hotspots. These cities have experienced significant spikes in property values and a surge in demand, solidifying them as prime locations for prospective investors.

For instance, Tampa, Florida, clinched the top spot in Zillow’s 2022 ranking of the United States’ hottest real estate markets. The state’s housing prices have witnessed some of the most dramatic increases in the country, with Miami and Tampa leading the upswing. Factors like a large pool of potential buyers, limited supply, robust property sales, and an active employment market have contributed to Florida’s exceptional performance.

Factors Driving Real Estate Growth in Florida

Florida’s favorable economic conditions, tax advantages, and vibrant lifestyle make it an attractive destination for potential investors seeking long-term growth and profitability in the real estate sector.

Population Migration

The pandemic has further accelerated Florida’s consistent leadership in net migration for over five years. This population influx fuels the demand for rental properties, creating an ideal environment for real estate investments. As of August 2023, around 1,000 people are moving into the state daily, a testament to its allure.

Economic Stability

The state’s robust and steadily growing economy is pivotal in driving real estate growth. A thriving economy translates to increased rental opportunities and a favorable climate for property appreciation. In August 2023, the median time to contract for a single-family home was 27 days, significantly longer than the 16-day timeframe at the same time the previous year.

Tax Advantages

Florida’s allure is enhanced by its favorable tax policies. The absence of state income tax and estate taxes and limited property tax assessments for residents make it an attractive destination for potential investors. On a median-priced $415,000 sale, this translates to an additional $9,545 in the buyer’s favor.

Desirable Lifestyle

With world-renowned attractions like Disney World, top-rated beaches, and a plethora of leisure options, Florida offers a high-quality lifestyle. This, in turn, contributes to the strong buyer demand and competition in the real estate market.

best states to invest in real estate investing, investment property taxes, rental property taxes, invest in real estate median household income, average rent job growth rate

2. Texas: The Lone Star State

Hailed as the Lone Star State, Texas is poised to be a real estate powerhouse in 2023, securing the third-hottest market position according to the National Association of Realtors (NAR). The market reflects substantial growth, with a notable year-over-year surge of 14.6% in home values.

Since August 2014, home values in Texas have doubled, exemplifying the state’s robust and consistent upward trajectory in the real estate sector. The median sale-to-list price ratio of 0.993 suggests that homes are fetching slightly below the list price, indicating a balanced negotiation environment for buyers and sellers. Additionally, the median time from listing to pending status is 23 days, underscoring the rapid pace of transactions.

Factors Contributing to Texas’ Investment Appeal

Texas boasts diverse locales, ranging from picturesque coastlines to culturally rich urban centers and serene natural parks. This diversity fuels the state’s appeal to both tourists and residents alike. It lays a fertile ground for investment in vacation rentals and provides a stable foundation for long-term rental and fix-and-flip endeavors.

Continuous Population Growth

Texas is slated for sustained population expansion as the second most populous state in the U.S.. With over half a million people relocating to Texas annually, the net domestic migration consistently adds hundreds of thousands of residents yearly. This influx fuels the demand for housing and anchors property values, ensuring a steady and robust market.

High-Yield Rental Market

The rental market in Texas is characterized by a wide spectrum of rental rates, varying across locations, counties, and neighborhoods. Over the past year, data from Zillow indicates a noteworthy 5.8% surge in the median rent in Texas. This upward trend is expected to persist, soaring to 8.4% this year, as indicated by the Dallas Fed report.

These favorable conditions, coupled with the state’s landlord-friendly legal and regulatory environment, make Texas an alluring destination for real estate investors seeking both immediate and long-term returns.

Favorable Landlord Laws

Property owners in Texas benefit from robust legal frameworks prioritizing their rights. With swifter eviction processes and laws typically tilted in favor of landlords during tenant disputes, investors can find greater confidence in protecting their real estate investments compared to many other states.

Texas Cities with High Investment Potential

Texas offers a rich tapestry of options to suit various investment preferences, from bustling cities like Houston and Dallas to emerging markets like Waco and El Paso.

Houston: A Prime Investment Hub

Houston, often hailed as the fourth largest city in the United States, has become a beacon for real estate investors. Fueled by a diverse economic landscape rooted in energy, aerospace, and manufacturing, Houston continues to experience steady annual growth, averaging around 2%. This city’s real estate market is particularly dynamic.

Houston presents compelling opportunities for investors with a median home value of $273,576 and a noteworthy five-year appreciation rate of 53.9%.

Austin: The Vibrant Capital

Austin, the capital city of Texas, isn’t just a political epicenter, but also a vibrant cultural hub. Renowned for its live music scene, culinary delights, and abundant outdoor activities, Austin is a magnet for both residents and tourists. Boasting the second-highest growth rate among American cities, Austin’s demand for rental properties remains robust, largely attributed to the presence of The University of Texas.

Though the median home price in Austin stands at $625,705, it’s worth noting that strategic investments in the city center and southern regions can yield favorable returns, as these areas often present unique opportunities for discerning investors.

Waco: Emerging Market with Tremendous Potential

Waco, nestled in the heart of Texas, has garnered attention as one of the state’s top emerging housing markets. This surge is underpinned by a flourishing job market, driven by major players such as Amazon, SpaceX, and Baylor University. Over the past five years, property values have appreciated by a remarkable 75%, solidifying Waco’s status as an attractive option for long-term investments.

Dallas: Flourishing Economy and Rising Population

Despite a relatively higher price point than its Texas counterparts, Dallas remains a prime choice for real estate investment due to its thriving economy. Noteworthy relocations of major companies like Toyota and Topgolf have bolstered the city’s business landscape. The Dallas metro area anticipates doubling its population over the next 15 years, translating to sustained demand for rental properties.

With a considerable 52.9% of the population in Dallas being renters, long-term leasing strategies find a strong footing in this city. It’s worth noting that Dallas boasts one of the highest rental rates in the state, indicating a favorable environment for investors.

El Paso: A Burgeoning Housing Market

El Paso’s real estate market is currently on an upward trajectory after a period of stagnant home price increases. Analysts project an impressive 8.9% growth in home sales for 2023. The affordability factor remains a strong suit for El Paso, which has managed to maintain stable median prices.

This stability, coupled with consistent population growth and a recent influx of residents from pricier metropolitan areas, positions El Paso as a market with significant potential for investors. In fact, in 2022, El Paso garnered the title of Texas’ hottest market with a Real Estate Confidence Index (RCI) of 77.2.

Best states to invest in real estate, average rent invest in real estate, population growth, job growth best real estate markets, median home price, median property values

3. Tennessee: The Volunteer State

With a 1.7% year-over-year increase in home prices as of September, Tennessee’s real estate market demonstrates steady growth. Despite a 22.6% drop in homes sold and a 2.7% reduction in listings, the state remains an attractive prospect for investors.

Despite an expected decline in home sales, the market’s robust fundamentals ensure a steady trajectory. For investors seeking opportunities, Tennessee’s real estate landscape offers diverse options, driven by economic stability and population growth.

Economic Stability and Population Growth

Tennessee’s diverse economy, spanning automotive manufacturing to healthcare and technology, fuels the state’s real estate appeal. Major corporations and ample job opportunities draw a steady influx of residents.

The state’s population growth, fueled by domestic migration and international immigration, creates a heightened demand for housing. Favorable interest rates and accessible financing options further bolster the housing market.

Thriving Cities: Nashville, Memphis, and Knoxville

Renowned for its music scene and rapidly-growing economy, Nashville leads the charge in Tennessee’s real estate market. Median home prices in the capital city surpass the state average, reflecting its desirability.

Memphis, situated along the Mississippi River, offers affordability compared to larger cities. In the Great Smoky Mountains, Knoxville combines natural beauty with a strong sense of community, attracting families and young professionals.

Nashville’s Real Estate Market

Nashville, the heart of Tennessee, stands out as a thriving real estate market. The city’s popularity is evident with median home prices considerably higher than the state average. Ranking among the best markets in the U.S., Nashville’s real estate prowess is undeniable. The city’s exceptional growth, attributed to factors like favorable demographics and migration patterns, positions it as a hotspot for investors.

East Tennessee’s Housing Trends

East Tennessee’s real estate market witnessed remarkable growth over the past two years, marked by surging home sales and record-breaking price appreciation. Supply-demand dynamics, demographic shifts, and migration trends played pivotal roles. While pandemic-induced influences like low borrowing costs taper off, the market retains much of its gains. Home price growth, though slowing, remains above historic averages, indicating a resilient market.

Knoxville Rental Market Dynamics

Knoxville’s rental market, characterized by a 19.6% year-over-year increase in Q3 2022, outpaces the national average. Affordability concerns and a limited inventory continue to drive price pressures, with home prices projected to rise between 3% and 5% in 2023.

best states to invest in real estate portfolio average rent, job growth, population growth, median home price, home prices, average rent prices, rental prices

4. California: The Golden State

California, known for its diverse real estate opportunities, boasts a dynamic market with challenges and lucrative prospects. Home prices surged by 4.8% year-over-year in September, showcasing the state’s resilience in the face of economic fluctuations. However, a 21.4% decline in homes sold and a 23.6% reduction in listings indicate a tight market demanding strategic investment approaches.

Prime Markets: Los Angeles, San Francisco, and San Diego

Iconic cities like Los Angeles, San Francisco, and San Diego shape California’s real estate narrative. While these markets present higher property prices, they can deliver higher returns. Each city offers a unique blend of lifestyle, economic opportunities, and cultural experiences, making them focal points for real estate investors seeking diverse investment avenues.

Southern California and the Bay Area present distinct trends. While Southern California witnessed stable house prices, the Bay Area experienced a 0.4% rise. Sales volumes, however, experienced a notable decline. Median house prices rose to $859,980, with condos reaching $657,000, reflecting the region’s premium real estate landscape.

Balancing Property Prices with Returns

Investors in California navigate a landscape marked by premium property values. In April 2022, the state saw home prices surge by 4.1% month-over-month, setting a record average sale price of $884,890. This upward trajectory, though indicative of market strength, also poses affordability challenges.

The imbalance between supply and demand has led to intense competition, with nearly 73% of homes selling at or above the asking price in April 2022. While this has created urgency among buyers, it has prompted homeowners to evaluate their selling strategies, potentially introducing a measure of balance.

Why Invest in California Real Estate?

California real estate investment can offer several advantages. The market exhibits high liquidity, with properties holding their value. Profitability is achievable through rental income or resale of residential and non-residential properties.

Accessible credit products, including mortgages, lower the entry threshold for aspiring investors. The extensive range of real estate options, spanning apartments, houses, commercial premises, and land, provides ample choice for investors with varied preferences and budgets.

average rent prices, steady job growth, rent prices median income, affordable housing state's population, buy rental property tax, high property taxes, lowest property taxes

5. Virginia: The Old Dominion State

Virginia, often called the Old Dominion State, offers a dynamic real estate landscape characterized by competitive pricing, particularly in areas adjacent to Washington, D.C. The state boasts a commendable homeownership rate, with approximately 67.4% of households owning their homes as of 2022. Savvy investors are drawn to Virginia’s market due to its scenic beauty, economic stability, and proximity to key urban centers.

Virginia Real Estate Market Trends 2023

Following years of rapid growth, the Virginia housing market is entering a phase of stabilization. This presents opportunities for first-time buyers and homeowners, fostering a more balanced and sustainable market. The Northern Virginia housing market has witnessed substantial growth, characterized by low inventory and high demand.

With an average home price of around $700,000, the market is competitive and fast-paced, with homes often selling in less than a week. This stability in the market bodes well for investors seeking long-term prospects without the frenzy of an unprecedented seller’s market.

Key Investment Areas: Alexandria, Arlington, and Richmond

Key cities like Alexandria, Arlington, and Richmond stand out as prime investment destinations in Virginia. These urban centers offer a mix of historic charm, economic vitality, and cultural richness, creating diverse opportunities for real estate investors. Alexandria, with its waterfront views and historic districts, Arlington’s strategic location near D.C., and Richmond’s rich cultural heritage, are all magnets for savvy investors.

Proximity to Washington, D.C.: Impact on Virginia’s Market

Virginia’s proximity to the nation’s capital significantly influences its real estate market. The areas bordering Washington, D.C. experience heightened demand, leading to increased property values. Home prices in Virginia surged by 6.3% year-over-year in September, signaling a robust market. However, a 23.6% decline in homes sold and a 15.3% reduction in listings underscore the market’s competitive nature.

Job growth, rent prices, median income job growth, property tax, low property taxes, rental demand, buy investment properties low cost of living, states to invest

Final Thoughts

Navigating real estate investment amidst the dual challenges of inflation and rising interest rates can be a tightrope walk. Inflation’s typical boost to hard asset values and accelerated rent growth provides a hedge, yet the threat arises when higher interest rates devour the surplus from increased rents. In contrast, alternative avenues like mortgage notes may offer a compelling path to wealth creation.

By opting for notes, investors often sidestep the pitfalls of property ownership, erratic market fluctuations and low ROIs. Backed by real estate collateral, mortgage notes can provide a layer of security, substantially lowering overall investment risk. At CWS Investments, we offer a steady route to building wealth without the roller-coaster ride of traditional real estate ventures.

At CWS we aim to provide our investors with an annualized 8-10% return rate, distributed monthly through dividends. By acting as the bank rather than the property owner, you’re free from the operational hassles of tenant relations and property management. Speak with a team member today to start shaping a brighter tomorrow, where your success is our priority!

Great investment strategy, job growth, low property taxes, median home value, low cost of living, median home values, high median income, housing demand

Frequently Asked Questions (FAQs)

What state has the highest ROI on a house?

Texas currently boasts some of the highest ROI (Return on Investment) rates for houses. Cities like Austin, Dallas, and Houston have seen substantial appreciation and rental income, making them prime choices for real estate investors.

Is buying property in the USA a good investment?

Yes, investing in US real estate can be a lucrative endeavor. The diverse market offers a range of options, from high-appreciation urban areas to steady rental markets in suburban regions. Conducting thorough research and consulting with experts can help identify the best opportunities.

Can foreigners buy property in the USA?

Yes, foreigners can buy property in the USA. There are no restrictions on non-US citizens purchasing real estate. However, additional considerations, such as tax implications and financing options, may arise. It’s advisable to seek legal and financial advice before investing in international property.