Top Ten States for Rental Investments in 2024

Top Ten States for Rental Investments in 2024

The real estate market is complex and influenced by various factors, but some trends are more likely than others to exert meaningful pressure on the performance and value of rental property. After decades of positive population and economic growth, a reversal of fortunes (particularly in California) has forced many investors to reconsider the long-term prospects for West Coast residential rentals. Conversely, non-coastal Western states, Texas, and the Southeast all have benefited from positive trends, partially at the expense of the Golden State.

Migration Patterns: A continued outflow of residents from the West Coast, due to factors like high living costs, job opportunities, or quality-of-life issues, have already impacted housing demand. A long-term decrease in population may lead to a surplus of available homes, putting downward pressure on prices.

Economic Challenges: Job losses, punitive taxation, wage stagnation, or economic uncertainty can lead to a slowdown in the real estate market and potentially lower property values. While lower homeownership rates may prop up rental occupancies in the short term, landlords of SFR rentals may no longer enjoy the same long-term appreciation potential.

Elevated Interest Rates: If higher interest rates persist, borrowing simply may not be an option for many households in states where homeownership (or buying a first rental property) is already expensive. Basic laws of economics dictate that higher debt costs will decrease demand—particularly among first-time homebuyers—thereby driving down prices for entry- level homes (the same types of properties that represent most of the rental market).

Natural Disasters and Climate Change: The West’s susceptibility to natural disasters like wildfires, earthquakes and droughts also impacts real estate values. Properties in high-risk areas may see decreased demand or face challenges in obtaining insurance, affecting both their net operating income and future market value.

State and local policy makers on the West Coast are consistently adversarial to landlords and business owners. Through a combination of exorbitant taxes, wasteful spending and egregious regulations, these states have managed to repel employers and employees alike in massive numbers. There is little reason to believe these trends will change. Outside a few isolated pockets of coastal wealth that defy broader market forces, it is difficult to justify the long-held assumption that West Coast property values will always increase axiomatically.

Where, then, should one look to invest in rental housing? Using a blended score based on population growth, job growth and tax climate, below are the top ten states for real estate investment in 2024. California was 36^th on this list, and 48^th in terms of tax climate (ranked only behind New York and New Jersey for worst taxes).

Overall Rank*                        ( Pop. Growth / Job Growth / Tax Climate )

* Excludes states with populations of less than 2 million.

If you are considering relocating your real estate equity to another state, start by giving your current property a quick check-up: https://1031-capital-solutions.involve.me/yield-calculator. By estimating the current yield of your rental property as a percentage of your equity, you can make a more educated decision whether to keep, sell or exchange your current property.

Richard D. Gann, JD is a Managing Partner with 1031 Capital Solutions and co-author of the book, How to Retire from Being a Landlord.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance is not indicative of future results.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.

Population growth: http://www.usa.com/rank/us–population-growth-rate–state-rank.htm

Job growth: https://www.usnews.com/news/best-states/rankings/economy/employment/job-growth

Tax climate: https://taxfoundation.org/research/all/state/2024-state-business-tax-climate-index/

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