You’ve probably noticed that the housing market across the nation is overvalued. The combination of low inventory and low interest rates beginning in early 2020 created a huge gap between supply and demand leading to rapidly rising home prices. An upside for rental property investors is that while high home prices increase acquisition prices, monthly rent prices are increasing as well.
However, some areas of the country, such as Florida, offer better opportunities for real estate investors looking to buy and hold income-producing rental properties. In this article, we’ll look at why Florida could be a good bet for real estate investors.
The Short Version
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As a rental property investor, your goal is to buy and hold profitable properties. Profitable properties produce positive monthly cash flow, so the annual rental income should cover your annual property expenses, and then some.
In order to find these properties, you’ll need to look at location. Specifically, areas with properties at a decent acquisition price and a pool of tenants who can afford the rent.
Savvy investors look for good rental markets with lots of long-term potential.
Related>>7 Best Places to Invest in Real Estate in 2022
In This Article
The Four Attributes Of Profitable Properties
It’s not rocket science: Great weather + a lower-than-average cost of living = a more desirable location to own a rental.
So What About Florida?
Given these criteria, Florida ranks high on the list as a state where profitable properties can be found for rental property investors.
Here are a few state statistics worth noting:
Florida Housing Market Predictions for 2022
Based on the above stats listed, many experts expect that Florida’s real estate market will continue to thrive in 2022 and beyond. Unlike in some other areas, Florida’s market has been driven up largely by an increase in demand rather than speculation, investor flips, and “moonshot” asking prices.
Still, rising interest rates will put downward pressure on prices. And even with an expanding population and workforce, home prices have been rising faster than median wages. So we could see price growth slow down in Florida in the latter half of 2022 and into 2023.
In some of the most heavily overvalued areas, growth may even completely grind to a halt over the next 12-18 months. But most area pros aren’t predicting any sort of a market crash like the U.S. experienced in 2008.
How Does Florida Stack Up for Rental Property Investors on Each of These Attributes?
According to The Economist, if Florida was a country, it would be the fifteenth-richest nation in the world, with a GDP of over $1.1 trillion. The state’s economy continues to grow with a job growth rate faster than the national average.
Population and Job Market
On the job market front, Florida added 500,000 jobs in 2021.
Florida’s population growth is steadily growing each year and it looks like that trend will continue. The Weldon Cooper Center for Public Service predicts that Florida’s population will reach 28,886,983 people by 2040. That would make it the third largest state by population. That’s good for long-term real estate investors who want limited vacancy.
Rent Multiplier
The median home price in Florida in 2020 was $245,169 which rose to $366,301 in 2022. The average rent in 2020 was $1,240 (a rent multiplier of .61%) and increased to $1,760 today (a rent multiplier of .58). While it may seem like that’s a small drop in the rent multiplier for Florida, it’s actually on par or better now. Generally, rent adjustments lag behind home price increases by six to 12 months so one can expect the rents to increase.
Cost of Living
Florida’s cost of living index is 100.3, on par with the rest of the country. This makes Florida a more advantageous market than Mississippi, which has a rating of 83.3 (where rents are low). It’s also easier to buy properties in Florida than more expensive states like Hawaii (193.3), New York (148.2) and California (142.2).
Which Areas of Florida Are the Best Investment Bets?
Several Florida cities are prized by real estate investors. Here are a few that are worth considering if you’re planning to invest in the Sunshine State.
Lakeland, Florida
Lakeland is in Central Florida between Tampa and Orlando. It’s about a 40-minute drive to either of these year-round tourist destinations with ample work opportunities. As the name implies, Lakeland has many lakes and it’s also an easy drive to the eastern shore which makes it a desirable place to live. Lakeland isn’t just a senior retirement spot – the median age of residents is 37.
In the Lakeland-Winter Haven metro area, the population climbed from 729,233 in July 2020 to 753,520 in July 2021. The 3.3% increase ranks as the seventh highest among all U.S. metro areas. The median home price is $266,900 and homes have increased in value by 135% over the past 10 years. The average rent is $1,395, increasing from $1,200 since early 2021. The rent multiplier is a healthy 6.3 and the cost of living comes in at 86.4 which is about 13 percent lower than the U.S. average.
Spring Hill, Florida
Spring Hill, Florida is a Tampa suburb with a growing population. Its central location offers a manageable commute to a plethora of job opportunities nearby in St. Petersburg, Tampa and Clearwater. The median home price is $243,145 and the average rent is $1,490 per month giving a rent multiplier of 0.73. And at 93.7%, the cost of living is lower than the national average.
Lehigh Acres, Florida.
With a median home price of $236,569 and an average monthly rent of $1,699, Lehigh Acres’ rent multiplier is 0.86. Their cost of living score is 95.8, which means it’s about 5% less expensive to live in Lehigh Acres than anywhere else in the country. The population is around 124,000.
While steadily growing between 2012 and 2020, population growth leveled off during the pandemic but remains at a healthy level for a suburban area. Even better, Lehigh Acres is conveniently located with an easy commute to Fort Myers where both the population and job opportunities have been growing.
Palm Bay, Florida
With a population of 120,646 Palm Bay, Florida is the most populous city in Brevard county . Located on the bay, as the name implies, Palm Bay is a beautiful place to live. The cost of living score is 89.9. By contrast, Tampa is 14.7% more expensive than Palm Bay. With a median home value of $242,535 and average rent of $1,408, the rent multiplier is sitting right at 0.7. Part of the “Space Coast” area, Palm Bay’s local employment opportunities include jobs at nearby aerospace and defense companies.
Jacksonville, Florida
Jacksonville is a growing metropolitan Florida city with a population of 1,533,796. It is ranked in the top 25 best cities to live in by US News and World Report. And, in a SurveyMonkey survey asking where in the U.S. respondents would prefer to live, Jacksonville ranked 13 out of 150 metro areas on the list. It’s also the home of several Fortune 500 companies.
Rent prices have been steadily increasing since March 2021 from $1,200/month to an average of $1,453 today. The median home price is $303,789 which means the rent multiplier is just under 0.6. And at 93.5, the overall cost of living is affordable relative to the rest of the country.
The Bottom Line
Just like most other housing markets in the U.S, the Florida market is overvalued. That means that wherever you invest, you need to be on the hunt for bargains and do your due diligence.
However, Florida has some great things going for it that lead me to think it’s one of the better states to invest in rental housing. When compared to other states where one could invest, trends in the Sunshine State look pretty sunny indeed.
Florida is a popular place to live and a destination where retirees continue to flock. That steady demand for housing could make Florida a great choice for real estate investors looking to provide affordable housing.
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