As 2022 comes to an end, homeowners are looking forward to a more stable rental business performance in 2023. With the soaring housing prices and mortgage rates, this year has really been tough for investors, especially those actively trying to build their rental portfolios. As we near the new year, let’s take a look at how the rental business is projected to perform in 2023 and where the best locations to invest in rental property will be.
Rental business in 2023
In the year 2022, rental properties were in demand due to significantly higher housing prices and increased mortgage rates. In October 2022, the median existing-home sales price was $379,000. Compared to October 2021, it increased by 6.6%. On the bright side, the $379,000 median price was already lower than the record high of $413,800 in June 2022. But, the current state of housing prices has ultimately caused Americans to opt for renting rather than buying their own property.
In a recent report by the National Association of Realtors (NAR), housing prices are still increasing. To buy a typical home, the median income needed is now $88,300. This is $40,000 more than the median income required before the pandemic.
Although high mortgage rates slow down the increase of home prices, it still exerts pressure on rental demand. To put it simply, only when the demand is met will the prices drop. And according to NAR Chief Economist Lawrence Yun, inventory is still “tight”, which causes investors to compete for the best properties.
As the current market makes it hard to purchase a home, rental demands increase. So, for investors and homebuyers, here are the best locations you should invest in rental property in 2023.
Being the capital of Tennessee, Nashville has the largest population in the state. Over the years, it has experienced massive growth not only in the number of residents but also in job opportunities. The city’s strategic position also makes it an ideal location for shipping and manufacturing. Plus, tourism and business potential spur high demand for housing and rentals. Lastly, the city’s housing prices remain affordable compared to other notable U.S. cities, making it more desirable for investors.
For years, Tampa has built a continuous momentum that makes it more than worthy of this list. As of the last quarter of 2022, the median purchase price per home in the city is around $323,040 and the average rental price is $1,970—an increase of 27.7% and 39%, respectively, year-over-year.
Considering these spikes, the population still grew by 1.4%. This is a good sign that people still desire to live in Tampa despite the above-average increase in housing and rental prices. So, if you’re planning to start your own rental business, you might want to consider Tampa for your first location and gain good returns.
Austin has consistently progressed as a key city in the tech industry, with companies hailing from California’s Silicon Valley relocating to the city. Also, industries like e-commerce, healthcare, and multiple corporate headquarters help maintain a low unemployment rate in the area of only 4.2%.
With companies like Apple, Samsung, and Tesla setting up huge offices in Austin, the city continues to attract more businesses. This has opened up more job opportunities not only for the locals but also for young professionals opting to move in from other major cities. Now, rental demands have ballooned along with the average median rent. Based on the current movements of Austin’s rental business, it is expected to keep growing in the following year, which is why investors should take Austin into consideration.
Las Vegas, NV
One thing to note about Las Vegas homes is that their appreciation is immensely remarkable. In the last five years, real estate prices have gone up by 75%. With an average of 15% appreciation per year, a home with a price of $414,900 today might have a price of $477,100 next year.
Aside from the potential price growth of Las Vegas homes every year, the rental market in the area is also something worth a closer look. Las Vegas currently has a low vacancy rate and out-of-state cash buyers and investors have made Vegas a very competitive market, resulting in a consistent rental demand increase.
Denver is another great city for rental investors with 51% of households renter-occupied. The city’s economy is experiencing job growth, which directly causes higher rental demand. Other factors that affect the rental business in this city are its flourishing tourism industry and the exceptionally low unemployment rate. All of these factors make Mile High City one of the best locations to invest in rental property in 2023.
San Diego, CA
When most companies supported the work-from-home setup, a lot of employees chose to move and live in warm locations. San Diego’s rental business benefited from this trend as it experienced a significant boost in rental demand. As a result of high demand, in the last six months alone, rents have increased by as much as 5%. Despite this, rental demand stays consistent. This makes San Diego a desirable spot to invest in the rental business as landlords have a lower chance for vacancy while at the same time increasing rents.
Up next: California tenant screening laws
The year 2023 is right around the corner and is a great time for you to start building or expanding your rental portfolio. From cities with good tourism industries and economies to warm weather locales like San Diego, there are certain factors you should consider to determine the best locations to invest in rental properties. Boost your chances of having high-performing rentals by equipping yourself with the proper knowledge, starting at the right location.