Best U.S. Markets for Buying Rentals

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Memphis, Saginaw, Toledo and Las Vegas are the best markets in the U.S. for investors to buy single family homes with the intent to rent out, according to a new report from RealtyTrac. 

The research firm analyzed median sale prices and average rental rates in cities around the U.S. to develop a list of the top 20 markets for single-family homes investors to target.

Although institutional investors have crowded the market for single family rentals in the U.S., buying tens of thousands of properties in 2012, there are still opportunities for individual investors, according to the firm.

"The top 20 markets we selected represent the best chance to buy rental homes that generate good cash flow, but opportunities are available in most markets across the country given the combination of relatively low prices, low interest rates and a strong rental market," RealtyTrac vice president Daren Blomquist said in a statement.

Many of the cities on the list were hard hit by the down turn. Florida has eight markets on the list, the most of any state. But Florida and Las Vegas are among the markets that have seen a strong rebound in prices in recent months.

RealtyTrac's data was limited to metro areas with a population of at least 200,000 and was restricted to markets experiencing "the one percent rule," where average monthly gross rent for a three-bedroom home was at least one percent or more than the median sales price.

While the data can help with general calculations, some are cautious.

"The bottom line is, the best rental property for an individual to buy is the one he or she both understands best and is able to manage most efficiently and effectively," real estate investor Tony Alvarez told RealtyTrac, noting particular property characteristics must be taken into account for each purchase.