One of the most important factors used to evaluate a potential target investment market is supply and demand.
The demand side of the equation is measured in part by the change in median rent year-over-year – an increase in median rent indicates an increase in the demand for rental properties in a particular area, and vice versa.
Ideally, the change in rent for your target market is positive (obviously) and is greater than the average national change in rent. From October 2017 to October 2018, the average national change in rent was +1.1% (compared to +2.8% and +2.6% over the same time period in 2016 and 2015 respectively). This would indicate that rent growth is sluggish on a national scale compared to previous years. However, the top markets in the country are continuing to outpace the current and past two year averages.
Here are the top 12 US cities where rents increased the most from October 2017 to October 2018:
12. Richmond, Virginia
Sean Pavone/Shutterstock
Median 1BR rent: $891
Median 2BR rent: $1,028
Year-over-year change: +2.6%
11.Tampa, Florida
Shutterstock
Median 1BR rent: $1,011
Median 2BR rent: $1,258
Year-over-year change: +2.6%
10. Jacksonville, Florida
Shutterstock
Median 1BR rent: $881
Median 2BR rent: $1,078
Year-over-year change: +2.7%
9. San Jose, California
Silicon Valley Stock
Median 1BR rent: $2,102
Median 2BR rent: $2,634
Year-over-year change: +2.7%
8. Arlington, Texas
Kid101
Median 1BR rent: $990
Median 2BR rent: $1,230
Year-over-year change: +2.8%
7. Riverside, California
Flickr
Median 1BR rent: $1,064
Median 2BR rent: $1,330
Year-over-year change: +3.0%
6. Mesa, Arizona
Redux
Median 1BR rent: $865
Median 2BR rent: $1,078
Year-over-year change: +3.0%
5. Phoenix, Arizona
Phoenix New Times
Median 1BR rent: $846
Median 2BR rent: $1,054
Year-over-year change: +3.0%
4. Corpus Christi, Texas
Expedia
Median 1BR rent: $846
Median 2BR rent: $1,057
Year-over-year change: 3.1%
3. Knoxville, Tennessee
Mapio
Median 1BR rent: $776
Median 2BR rent: $953
Year-over-year change: +3.6%
2. Las Vegas, Nevada
Visit Las Vegas
Median 1BR rent: $927
Median 2BR rent: $1,149
Year-over-year change: +3.6%
1. Orlando, Florida
iStock
Median 1BR rent: $1,063
Median 2BR rent: $1,273
Year-over-year change: +4.4%
If you are investing in one of these markets, do not assume that the future rent growth will be the same. Always conservatively estimate the annual income growth factor – 2% to 3% maximum. That way, if the rental rates slow, you’ll still hit your projections. And if the rental rates continue or increase, you’ll exceed your projections, which means more money for you and your investors!
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