The 10 Best States for Real Estate Investment in 2022

If you’re looking to dip your feet into real estate investment, it can feel like the world is your oyster. And while this may be the case, does it really mean that all areas of the oyster are worth investing in?

Maybe we’re taking the analogy too far. All we’re trying to say is this— if you have the option of choosing the state that you’re investing in, there is a way that you can go about it strategically so that you’re better positioned to painlessly make passive income.

But there’s one catch: you’re going to have to look beyond “cheap states” that can offer you “cheap cities” and “cheap houses”. In this list, we will present you with a balanced overview of the states that we think you should consider if you’re buying real estate. Here’s a brief overview of the factors that we looked at to determine the states that came out ahead:

Factors we used to determine the best states for investment

Average home price: We looked for affordable housing prices that don’t represent a hurdle for investment by focusing on states that have average home prices between $100K and $300K (if you made a down payment of 20%, this range would require a down payment between $20-60K to invest).

Economic growth rate: For each state, we looked at their historic economic growth rates to ensure that there is potential for your renting pool to generate consistent passive income.

Average household income: The best tenants are the ones who can comfortably afford rent every month. We looked for a strong average household income in the area to help determine whether or not a state is a good environment for landlords.

Employment rate: In the wake of the COVID-19 pandemic, employment rates can be unpredictable. We included states that have maintained a sustainable employment rate on a regular basis. A high employment rate also indicates a strong job market.

Median gross rent: If you’re looking to make a healthy income from your rental properties, you will want to be able to charge rent that at least covers your operating expenses. However, you also don’t want to invest in an area where rents are prohibitively high. Affordable rent is an important part of finding tenants, so we aimed to find states with a good balance.

Vacancy rate: We looked at occupancy rates to give us a sign of how much difficulty you might have in finding a tenant. While 5 to 8% is the average vacancy rate, generally speaking, the lower the vacancy rate the more it will swing in a landlord’s favor.

Crime rate: We used the crime rate as a factor in determining how safe and desirable a state is to live in (this is especially important for short-term investments).

Median home value increases year-over-year: It’s no secret that home prices are universally increasing across the United States, but in some areas, the increase is much more drastic. While we recognize that rising house prices can be a good thing for a landlord looking to make a good investment, we also took into consideration the fact that exponential growth can be volatile.

Median rent increase year-over-year: Again, rent increases can be a good thing for landlords. However, if rent prices strongly outpace wage increases, it can spell out trouble in any housing market. We tried to look out for median rent increases that were healthy—i.e., not too high, not too low. Around 2% is ideal.

Owner-occupied housing unit rate: If everyone owns a home, there is not much of a renting pool for landlords to choose from. We tried to focus on states with around 60%-70% homeownership rates—this signifies a healthy economy and leaves a decent pool of renters to choose from.

Population growth: Healthy population growth is a sign of economic health, as strong job prospects are a common pull factor for those moving to a new state. It also means a new pool of renters will be looking for their next home in the state every year.

Job growth: In order to support a state’s population growth, there needs to be job growth as well. Job growth represents a healthy economy and means that you’re more likely to find high-quality tenants with steady employment.

Average property tax: Property taxes can eat into a landlord’s profit, especially if they’re investing in multiple-income properties. If we included states with higher-than-average property taxes, we made sure that it could be justified with healthy economic prospects and desirable housing stock.

The sources for the above data included the US Census, Business Insider, Zillow, Zumper, the US Bureau of Labor Statistics, Statista, the World Population Review, Rocket Mortgage, and the FBI Crime Report.