Renting out property is one of the best ways to get started investing in real estate, but owning a rental property can be very different in one state compared to another. From renting laws and property taxes to long-term growth potential and more, owners should consider numerous factors before investing in a rental.
If you’re considering taking on a rental property, it’s important to understand exactly what you’re getting into. This article will cover the five best states to own a rental property and what separates them from the rest. While it’s impossible to predict which properties are good investments, these states offer several advantages for owners.
The 5 Best States to Own Rental Property
Florida
Florida offers a number of benefits that make it an attractive option for landlords, including both financial and personal considerations. It’s one of the few states that charge no income tax at all. It also receives more tourists each year than nearly any other state. In fact, more than 126 million people visited the state in 2018.
With high demand among both residents and tourists, you’ll have an easier time finding renters in Florida than in many other states. It’s a great option for landlords looking for a lucrative short- and long-term investment. Florida is also an extremely comfortable and beautiful place to live.
Florida is also experiencing substantial growth in both population and GDP per capita. Its growth numbers outpace American averages by a significant margin. The state’s population grew nearly 8 percent between 2011 and 2016, compared to just over 6 percent for the rest of the country.
On the other hand, Florida’s property taxes are slightly higher than those of the average state. While Florida charges a median rate of just under one percent, states like West Virginia, Hawaii, and Delaware charge less than 0.5 percent.
Colorado
Colorado is currently one of the most lucrative states for property investment. In fact, it’s among the top ten states in both home appreciation and population growth. The earlier you can buy a rental property in Colorado, the sooner you’ll start earning money on that investment. Colorado is also experiencing more income growth than the average state. The median income is nearly $9,000 higher than in the rest of the country.
In addition to strong investment potential, Colorado offers a varied environment depending on where you choose to buy. Denver is the largest city in the region, and there are a range of smaller towns and cities. The state also contains incredible natural beauty which attracts a high number of tourists every year.
Colorado charges property tax at an effective rate of less than 0.6 percent, one of the lowest in the country. It’s one of the few states with a flat income tax structure, so you’ll be charged the same rate regardless of how much you earn per year. Its combination of financial and other benefits make it a top option for landlords.
Nevada
Nevada’s home prices are currently rising at the fastest rate in the United States. With an annual increase of more than 13 percent, landlords who invest in Nevada will generate returns very quickly. Like Hawaii, Nevada receives large numbers of tourists every year, making it perfect for vacation rentals.
Nevada also places fourth among all states in population growth, indicating high property demand among residents, tourists, and transplants. With property tax rates in the lower half and no income tax at all, you’ll save money relative to states like Illinois, Texas, and New York. These factors and more are why Nevada is one of the safest states for rental property investment.
Washington
Washington is one spot ahead of Nevada for population growth in 2019, and it also posts favorable statistics in a number of other areas. It places in the top ten for median household income and comes in fifth for median home value.
Seattle is one of the most expensive property markets in the US, but other areas of Washington are equally promising. Like Florida and Nevada, Washington has no income tax. On the other hand, its property taxes fall near the median with an effective rate of just under one percent.
If you’re interested in investing in a rental property, it’s important to consider the location along with the property itself. Everything from income and property taxes to growth rates and housing appreciation can affect the value of your investment. These are some of the best states for investors to think about in 2019.
Hawaii
I bet this one surprised you, didn’t it? Well, to be frank, Hawaii — due to its high property values — may not be the greatest location if you’re looking to cash flow by renting out property to long-term tenants.
That said, it goes without saying that the Aloha State is a prime vacation destination, and it can be a desirable place for vacation rental investments.
In addition to being another popular tourist destination, Hawaii offers strong financial incentives to landlords interested in investing in a rental property. Its effective property tax rate is the lowest in the nation at 0.29 percent. That said, its median home value is very high at $617,400, meaning that there is a substantial barrier to entry to buying property in this state. You could, of course, partner with another investor to go in on a property together.
Hawaii is made up of more than 100 islands, so you’ll never run out of places to explore if you decide to live there. It’s a common target for people who want to move away from the fast pace of American life, and the Hawaiian lifestyle offers noteworthy health benefits. While it’s impossible to determine exactly what causes this trend, the Hawaiian life expectancy has been the highest in the United States for more than 30 years.
That said, property in Hawaii is more expensive than in any other state. Depending on your financial situation, it may be tough to afford the high price of homes in Hawaii. Of course, this value will also be reflected in your rental price, especially if you target vacationers.
You should also consider that Hawaii charges more income tax than most other states. Its top marginal rate is 11 percent. Only California (13.3 percent) has a higher income tax rate in the top bracket. Compared to states with less income tax—or even none at all—11 percent is a significant portion of your earnings.
