Buying rental property is one of the best ways to build wealth. Not only do you earn a steady monthly income from your tenants, but you can also take advantage of property appreciation and incredible tax breaks (for those living in the United States). While it might not be as glamorous as it looks on TV, being a landlord is the best way to build wealth over time. And, if you buy in one of the top seven cheapest places to buy investment property, it's also significantly more affordable than you likely think!
Let's explore what makes a city a good one to invest in and what the top seven cheapest (but still excellent) places are!
Cheapest Places to Buy Investment Property: Criteria
Before discussing the cheapest places to buy investment property, it's worth examining what makes a place good first. After all, while some areas are incredibly cheap to buy property, they may have other negative characteristics that explain the low price (like very high crime rates).
The best places to invest all have a few traits in common.
First, they are places where people want to live. That doesn't necessarily mean wealthy. Instead, it means that there are jobs that match the population's abilities, and steady, regular employment is plentiful. It doesn't have to be rich, but plenty of the inexpensive regions have stable jobs that allow your tenants to pay you rent.
Second, the best places to buy investment property have reasonable home valuations. “Cheap” property isn't cheap if it will be challenging to offload the property due to market conditions. That will make it tough to sell in the future. You can buy homes for as little as $50,000 in some places in the U.S., but they're still overvalued because they're tough to rent and sell. You want a place where the valuations only have one place to go, and that's up!
Lastly, you also probably want an area where maintenance, repairs, and property taxes are relatively affordable. In New Jersey, for example, property taxes are about 2% of the home's value annually – one of the highest in the nation. That makes properties a little less expensive than in neighboring New York, but it also means the annual cost is very high, whether you have tenants or not. Cheap is not merely a factor of sales price but also upkeep costs!
The Seven Cheapest Places to Buy Investment Property
With that in mind, here are the top seven cheapest places to buy investment property!
1. Detroit, Michigan
With a median home value of $80,000, Detroit is the least expensive place on this list. However, there's a reason for that. Plagued by high crime and a lousy job market, Detroit seems to have problems perpetually.
Buying a property for $30,000 or even $80,000 is tempting – especially for a beginner and especially if you're looking for a fix and flip-type investment. You can use a cheap property to learn the ropes and sell it for a profit. Or, you can buy a $50,000 home, and even if you only get $500 a month in rent from it, you're still on your way to earning monthly passive income.
Just be aware of what you're purchasing and make sure you talk with some local real estate agents.
2. Cleveland, Ohio
Next is a city called “the Forest City” as it's quite a beautiful town! Cleveland is home to major sports teams, fantastic nightlife, and, of course, the Rock ‘n' Roll Hall of Fame! It's a beautiful city with a median home value of around $100,000. That makes Cleveland the second-cheapest place on this list to buy in the United States.
While Ohio has relatively high property taxes compared with the rest of the nation, it has also experienced relatively high rental growth and a recent revitalization of the downtown core. In 2021, Forbes named Cleveland one of the top five housing markets to watch.
With affordability and beautiful lake views, although Cleveland is inexpensive now, it's not inconceivable that it could experience an explosion of growth in the coming years as people flee the higher-rent places in search of an easier life. Buying property now could get you ahead of that curve!
3. Birmingham, Alabama
As another beautiful, undervalued city, Birmingham is third on this list, with a median home value of around $110,000. With beautiful weather at over 2,600 hours of sunshine per year, Birmingham is a delightfully charming place to live.
The fact that it is reasonably desirable is one of the reasons investors love this city. Even though the median home value is low, the value proposition Birmingham provides is incredible. There's the University of Alabama at Birmingham and two major soft-drink bottlers with over $1 billion in yearly sales combined. These two industries provide plenty of jobs to Birmingham residents and make it one of the better places for investors to rent to stable tenants.
4. Memphis, Tennessee
Although Cleveland claims to be the birthplace of rock ‘n' roll, no city was more influential in music than Memphis. Elvis Presley, Memphis' most famous resident, shaped and inspired music for decades. At about $150,000, Memphis is also one of the cheapest places to buy investment property in the United States.
Despite its relatively low cost, Memphis is a bright, vibrant area. The Memphis economy is diverse and influential, with a strong music industry still to this day and numerous large companies, including FedEx, AutoZone, St. Jude's Children's Hospital, and Perkins Restaurants. There's a significant growth potential for investors regarding rental income and appreciation as more people discover the benefits of living in the warmer Tennessee climate at affordable prices.
5. Des Moines, Iowa
The capital of Iowa, Des Moines, is an incredible opportunity for investors. With an average home price of about $190,000, Des Moines is a bargain for what you can get in terms of property.
Although Iowa may not have some of the glamour of other cities, it has an incredible economic engine that helps ensure plenty of renters can pay on time. Des Moines is home to large insurance companies, including Principal Financial Group, Fidelity and Guaranty Life, and Allied Insurance. It is also home to large companies seeking a Midwest presence, including Wells Fargo, Electronic Data Systems, and UPS. And in 2021, Greater Des Moines was the fastest-growing major Midwest metro area, a good sign of things to come, especially for those looking to buy investment property here!
6. Columbia, South Carolina
Last but not least on this list is Columbia, the capital of South Carolina, and a lovely area with a median home value of about $210,000.
South Carolina is experiencing a significant upswing as people use their work-from-home flexibility to trade the cold, expensive lifestyle of places like New York and work in warm, less expensive places like Columbia. Many of these workers (with well-paying, stable jobs) are looking for places to rent. As such, rental prices have increased 21% year-over-year, and many expect those costs to go even higher as more people move into the state.
Even for those not working remotely, Columbia has always had a relatively strong economic outlook. With the University of South Carolina, Palmetto Health, and Technetics all in the Columbia area, there are plenty of employment opportunities for prospective tenants.
7. Indianapolis, Indiana
Like Des Moines, Indianapolis is not the most exciting city, but it is a beautiful place with a stable, growing economy. Home prices in Indianapolis are around $225,000, and those will likely continue to grow in the future.
Of course, Indianapolis' big claim to fame is the Indianapolis 500. It's one of the world's most significant sporting events and a substantial economic boost to the region. From a financial standpoint, “Indiana's employment situation is better than the nation's.” Large companies like Eli Lilly, Anthem, and Steak ‘n Shake are helping keep unemployment down and ensure this is a fantastic place to buy an investment property.
Plus, Indiana has one of the lowest property tax rates in the country. It's currently an average of 0.85% of a home's value annually. With a lower cost of living, lower property taxes, and lower maintenance costs, the city of Indianapolis is one of the cheaper places (in terms of recurring fees) to own a home on this list!
Cheapest Places to Buy Investment Property: Inexpensive Property Is the Perfect Gateway to Building Wealth
When it comes to real estate investing, the most important thing to do is start somewhere. Markets like New York, San Francisco, and Los Angeles might have all the glitz and glam, but they are expensive and challenging markets for real estate investing.
Instead, most people have better luck with the cheapest places to buy investment property. For example, you can get a beautiful home in Cleveland to rent out for $100,000. Assuming you put 20% down for a mortgage, you only need $20,000 to buy your first investment property! Indeed, being a landlord or starting your fix-and-flip career is much closer than you think!
You can even look further up north in the neighbouring country Canada which, is also very attractive for real estate investing. Read our 7 cheapest places for property investing in Canada to learn more.