Find Undervalued Investments for Long-Term and Short-Term Rentals in the Top 50 Cities

Which cities are the best options for long-term rentals versus short-term rentals? Home Usher has analyzed the top 50 largest cities in the U.S. to come up with the best undervalued areas to invest either in long-term or short-term rentals.

The short-term versus long-term rental table below provides estimates of local rent data and whether each area is good as a long-term or short-term rental. This is based on the calculated premium between both long-term and short-term rent estimates.

We’ve calculated the median sales prices for each city based on one to four bedroom sizes. Next, we’ve also calculated the gross rent multipliers. This will show possibly undervalued areas. Other data, such as long-term and short-term rent, has been collected from Renthop’s most recent collaboration with AirDNA. Renthop provided data such as average daily rate and monthly median rent. Read the end for the methodology on these rent, sales prices and gross rent multipliers.

A few things to consider. Renthop estimates net operating expenses for both short-term and long-term rent at 50%. This may overestimate the impact of expenses. The 50% rule, whereby investors estimate operating expenses at 50% of monthly rent, is a common, quick method to gauge expenses. Yet, this number can always go up or down. For the purposes of the table, we’ll stick with the 50% rule.

We’ve used Rocket Homes’ monthly median prices for each bedroom to calculate the gross rent multipliers. Median sales prices, depending on the area, may overestimate or underestimate prices.

In general, the more macro view of rentals, the broader the dataset. You can drill down into a neighborhood, but the trade-off is possibly limited data. This ends up providing a distorted view of the rental market.

The table here is meant to provide a broad, macro view of the top 50 cities and quickly find undervalued areas. After you locate promising areas, drill down into the neighborhoods.

One other note on the data. Certain cities have incomplete median sales prices, which prevents developing a GRM. These include Forth Worth, Sacramento, Wichita and prices for certain bedroom sizes in Dallas and Fresno. Finding additional sources for these sales prices would complete this data. However, this would end up with two or more data sources, each having their own methodologies for determining sales prices. You would end up comparing apples to oranges. For these cases, we’ve left those areas blank in the table.

Some interesting observations.

Most high GRMs are located in California and Washington

Of course, most high GRMs (a measure of sales price to average monthly rent) belong to California and Washington homes. Cities such as Seattle, Washington, Oakland, San Francisco and San Jose, California, have GRMs over 250.

200 GRM is a dividing line

Any area over 200 GRM on the table indicates paying more for appreciation versus cash flow. California, Washington, Austin, Texas, these areas all have rent multipliers close to 300. This indicates you’ll pay many multiples higher for the rent in those areas. That, in turn, means higher negative cash flow. In essence, you’re trading current positive cash flow for future appreciation of the home.

Some of the cites with lower 200 GRMs, such as: Albquereu, New Mexicao; Portland, Oregon; Austin, Texas; and Colorado Springs, Colorado, have promise as as either short-term and long-term rentals in that price tier.

Sub-100 GRM might be risky bets, but could pay off

Only a few cities have GRMs lower than 100. Detroit, Michigan, 2 bedrooms in Dallas, Texas and Houston, Texas are among them.

There are two mottos in real estate and investing: “location, location, location” and “buy low, sell high”. These sub-100 GRM properties may be located in up-and-coming areas.

If you can find undervalued deals in growing areas, your return on investment will be much greater.

After you’ve identified an area to buy, further research into planning departments, neighborhood demographics, income levels and corporate headquarter or factory relocations (just to name a few), give you an edge in identifying growing areas.

For instance, Panasonic has begun construction on a a $4 billion electric vehicle battery plant in De Soto, Kansas. The EV plant will provide batteries to Tesla. City officials project the plant will bring 4,000 jobs. De Soto has a population a little over 6,000 per the 2020 census. If it meets projections, that will double the town’s size (assuming all workers live there). That means a boost to real estate in the surrounding areas. More than that, there will be secondary effects such as services to these factory workers, i.e. retail, food, etc. That is an additional boost to real estate in that area.

This type of research, along with the data in this chart, will help you buy undervalued real estate assets today.


Per Renthop:

This study focused on how rental property owners across the largest 50 U.S. cities can maximize rental profits. To calculate the long-term rental median by bedroom count, we analyzed over 1.6 million rental listings created on RentHop between March 1, 2022 and August 31, 2022. We then calculate the monthly net operating income by bedroom count based on 50% operating expenses. For the purpose of this study, we included only one-bedroom, two-bedroom, three-bedroom, and four-bedroom properties.

Monthly vacation rental net operating income was calculated using data supplied by AirDNA, including daily average rates, total nights booked, and available listings between March 2022 and August 2022. We assumed 50% operating expenses for property owners to run a vacation rental. In addition, to fairly compare vacation rental and long-term rental profits, only entire-unit vacation rental bookings were included in the dataset.

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Disclaimer: None of this information is intended as financial advice. All investments require your own due diligence. Home Usher does not make any guarantees, warranties or representations for this information.