You don’t need to be a millionaire to invest in real estate. While saving for an investment property down payment can seem intimidating, the barrier to owning rental property will grow smaller by simply expanding your property search footprint.
If you’re already here, we don’t need to sell you on the merits of buying an out-of-state income property. You want to invest in real estate, you’ve got a budget, and that budget is under $100,000.
In this article, we’ll look at some of the best real estate markets for buying investment properties in the $100,000 range, and cover some helpful tips and things to be aware of.
→View investment properties listed under $100K on our marketplace
Benefits of buying an investment property under $100,000
You can get your foot in the real estate door sooner.
Depending on where you live, properties in your local market may be expensive. The median price of a single-family home in San Francisco, for example, comes in at a whopping $1.6 million. For the average person looking to invest in real estate, this makes the dream of rental property ownership...laughable.
But just because you’re renting in an expensive city doesn’t mean you can’t afford an investment property in another location. Real estate prices are incredibly diverse across the U.S., and if you’re priced out of your current market, an out-of-town investment might be the best way to get on the property ladder.
You don’t need to put all your skin in the game to be profitable.
When looking at investment properties under $100,000, don’t assume you need to put more money down up front. By sticking to the standard 20% down, your barrier to entry is much lower.
The fact that you need $20,000 or less for a down payment makes the process of saving up more feasible. It allows you to get into the real estate market sooner than later, so your money can start working for you.
>>Related: Smart ways to save for an investment property down payment
The cash flow potential is higher.
Depending on where you buy, cheaper properties may not present the best appreciation values when it comes to investing. However, they can be great for generating monthly cash flow. If higher monthly cash flow is a priority over renter stability and long-term appreciation, this investing criteria may work well for you.
Where to buy investment properties for under $100,000
The following markets (listed in no particular order) have inventory in the $100,000 ballpark, and exhibit a number of traits that are appealing from a single-family rental investment standpoint.
Cleveland, OH
LeBron may have left, but there are still good things happening in “Believeland.”
With Cleveland median sales prices ranging from $51,900 and $83,000, and strong gross rental yields predicted to reach 12.6% by 2021 according to John Burns Real Estate Consulting, Cleveland offers affordable entry points and the potential for attractive returns.
"Overlooked spots like Cleveland,” which also graced Forbes’ list of best markets for real estate investment in 2019, are appealing because “you’re more likely to find properties in very attractive locations, which in the end is what counts for a successful investment,” the article's author reasons.
With for-sale properties in short supply and prices on the rise, renting is up and home ownership is down in Cleveland, according to a January 2019 Marketplace report. Cleveland home values have gone up 10.5% over the past year and Zillow predicts they will rise 8.7% within the next year.
Cleveland is also getting noticed for its efforts to embrace tech. NPR reports an effort is underway to promote Cleveland as a center for blockchain innovation, and a new economy fueled by startups is helping to reinvent the city, according to Uncubed.
Lastly, Forbes points out that Cleveland can be a great market for buying large single-family homes at low prices and splitting them into several rental units.
Detroit, MI
With median sale prices hovering at around $55,000, and average rents for two- and three-bedroom homes ranging from $1,140 to $1,663 according to RentCafe, more and more investors are setting their sights on Motor City. Single-family gross rental yields in Detroit are very high at 15.1% according to John Burns Real Estate Consulting, and are expected to reach 15.5% in 2021.
“All eyes are on Detroit. It's the hip, new destination for millennials seeking out-of-the-box careers. It's a travel destination for curious adventure-seekers. And it's the perfect place for people to invest in residential real estate...I see a new Detroit on the horizon. It's a clean and functional city with affordable, safe rental properties, where families and millennials choose to live.” — Crane's Detroit Business
According to Forbes, Detroit's "long bust and recovery seems to be nearing a balance point, with demand for housing now good but the economy growing at a slow pace. In this type of uncertain situation, single-family rentals give the most flexibility."
Tip: While we’re talking about Detroit, here’s a relevant fact to keep in mind: rental prices can increase when job growth climbs in a city. Take a look at these real estate markets, including Detroit, that are attracting big companies. Businesses with global reach such as Amazon, LinkedIn, and Penske Logistics are all expanding into industrial space near the Detroit airport this year.
Oklahoma City, OK
The Oklahoma real estate market “has seen major benefits from the expansion of the oil industry,” according to a 2015 NerdWallet analysis, and the unemployment rate was just 2.6% as of November 2018 — compared to 3.7% nationally. In 2017, Oklahoma City was in the top 25 metro areas with the fastest growing job markets, and economic expansion in 2019 is looking promising as well, according to a report from the Oklahoma City Branch of the Federal Reserve of Kansas City.
Looking more closely at the single-family rental home sector, rents are expected to stay positive and grow in the next two years, with gross rental yields forecasted to hit a strong 11.3% by 2021, according to January 2019 data from John Burns Real Estate Consulting.
While current entry level home prices are in the ballpark of $120,300 according to John Burns Real Estate Consulting, a quick filtered search on Zillow reveals ample SFR inventory in the $75-$100,000 range. Median rent prices are around $1,000, and the owner-occupied housing unit rate from 2013-2017 was a little over half (58.8%) according to United States Census Bureau data.
Pittsburgh, PA
Pittsburgh is a city where the percentage of median income spent on rent is much higher than the median mortgage payment, even with very little money down. This ratio of mortgage-to-rent spells higher monthly cash flow for real estate investors. Overall, there’s a lot to like about the Pittsburgh real estate market. Check out our market spotlight on Steel City and see why our local market expert says “properties are flying off the shelves very quickly" in Pittsburgh.
Memphis, TN
Rental properties in Memphis are on the rise according to Memphis Business Journal. The owner-occupied housing unit rate in Memphis is less than half (47.5%), and rent has grown 14% from from January 2018 to January 2019 — all signs indicating steady rental demand. Overall, the latest data from John Burns Real Estate Consulting shows rents and gross rental yields in Memphis are expected to increase through 2021.
Like Cleveland, Memphis can also be a great market for buying large single-family homes at low prices and splitting them into several rental units, according to Forbes. The city is ranked as one of Tennessee’s top four metropolitan areas to live in, yet another positive driver of housing demand.
With shares of homes worth less than $100,000 currently sitting at 53.4% according to 24/7 Wall St., and the median rent price close to $900, it’s no wonder “the price-to-rent ratio has continued to keep Memphis on the map for out-of-town investors,” says local market expert Dan Butler, co-founder of CrestCore Realty.
Check out our in-depth marketplace spotlight on Memphis to learn more about this market, or browse dozens of Memphis investment properties on Roofstock.
Kansas City, MO
Recently named by Forbes as one of the best markets for real estate investment in 2019, Kansas City has a lot of potential for real estate investors seeking rental properties under $100,000.
Kansas City home values have gone up 11.5% over the past year and Zillow predicts they will rise 7.5% within the next year. The median rent price is currently $1,000, and the owner-occupied housing unit rate is just a little above half, according to the U.S. Census Bureau.
Overall, CNBC named Missouri one of the top 10 states that give you the biggest bang for your real estate investing buck, and Kansas City specifically was one of America’s fastest-growing tech cities in 2017.
Like all large cities, Kansas City has some great areas and not-so-great areas. Vet all zip codes and neighborhoods thoroughly before pulling the trigger, and prioritize teaming up with a stellar property manager. Jump to our tips on that below.
Indianapolis, IN
Indiana was recently named the No. 1 state in the U.S. to make money from real estate investing by CNBC, and Indianapolis is a primary reason the state took the top spot. Numerous outlets including Forbes, Bigger Pockets and Buildium call out “Circle City” as a top market to watch in 2019, and a recent report released by PwC US and the Urban Land Institute ranks Indianapolis in the top 20 “Markets to Watch” for overall real estate prospects in investment and development.
The average rent in Indianapolis is around $995 according to Zillow, and John Burns Real Estate Consulting expects SFR rental rates and gross yields in Indianapolis to climb through 2021.
Overall, the Indianapolis real estate market has a lot of great things going for it, as this one investor will tell you. This includes attractive acquisition price-to-rent ratios, making Indianpolis a perfect addition to round out our list.
Other markets with investment properties under $100,000, worth looking at:
Things to watch for when buying investment properties under $100,000
Depending on what you buy and where you buy, an investment property on the cheaper end of the spectrum may have a higher risk profile. Here are three common qualities associated with less expensive homes, and tips for getting in front of them.
1. Tenant turnover
Less expensive properties in lower-rated neighborhoods may experience greater tenant instability (keep in mind, this is not a blanket trend that applies to all properties, just something to be aware of). Consistently looking for new tenants burns a lot of time and capital, so here are a few tips to keep the rent flowing:
- Hire a property management company. Property managers don’t get paid unless rent is coming in, so it’s in their best interest to keep properties occupied. When your property does turn — as all rentals eventually do — a good property manager knows how to properly vet tenants and get the home occupied as quickly as possible. Bonus: When you buy an investment property on Roofstock, we’ll set you up with a vetted local property manager.
- Purchase your investment property on Roofstock. When browsing investment properties on our marketplace, you’ll be able to view the current lease agreement up front as well as tenant payment history, and know exactly what to expect.
- Check out our other tips to keep great tenants in your rental, even if you live far away.
>>Related: Our first tenant-turnover experience: How much it cost and what we learned
2. Needed repairs/renovations
Less expensive homes sometimes require a little more tender loving care than pricier properties, whether it’s a roof that needs to be replaced within next five years or an HVAC system on its last leg.
What to do: Due diligence and number crunching is the name of the game. If $100,000 is your budget, make sure you fully understand any required maintenance and rehab issues and factor that into the overall initial purchase price.
Tip: At Roofstock, we provide transparent due diligence up front, and also have the following measures in place to give real estate investors peace of mind:
- Inspection report posted with the property listing, OR
- Inspection contingency: If an inspection report is not yet available, Roofstock will provide a preliminary estimate of immediate repair costs. Your purchase is contingent upon a professional inspection, paid for by Roofstock. After reviewing the report, you may continue with the purchase or cancel your offer.
- Full financial analysis
3. Overall market health
It’s important to understand the local market dynamics no matter where you invest. When comparing different $100,000 investment properties side-by-side, the numbers might look fine on paper, but other external factors also influence overall return. For example, one market may have better numbers in terms of population growth, job growth, vacancy rates, etc.
Tips to understand local market dynamics:
- Drill into the zip code. The forums on Bigger Pockets are great for this. For example, try searching “best zip codes in [name of city you’re interested in] to gain a wealth of different perspectives.
- Call up a local property manager (or several). Don’t hesitate to pick up the phone and speak to someone on the ground. A property manager will have their finger directly on the pulse of the local real estate market as well as current rental demand. At Roofstock, we partner with hundreds of vetted property managers around the country, and would be happy to connect you with one of our partners directly.
- Learn more about the neighborhood. Use the Roofstock Neighborhood Rating to measure investment risk against potential return.
- Read market reports. Some helpful resources for getting up-to-date market data include Roofstock, Forbes, Curbed, Realtor.com, ATTOM Data Solutions, CoreLogic, and the RentCafe Market Snapshots, to name just a few.
- Speak with a Roofstock expert. At Roofstock, our team of experts are incredibly knowledgeable on rental markets across the U.S. and up to date on current trends. Many are also real estate investors with insight driven by personal experiences.
Conclusion
Living in an expensive market doesn’t have to keep you from investing in real estate. There are plenty of locations in the U.S. where a $20,000 down payment can get you into the market. Start by researching the metro areas listed above where the price-to-rent ratios for real estate investors are favorable, or simply visit the Roofstock marketplace and create a search filter for homes under $100,000.
