Las Vegas

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Most bang for your buck: Las Vegas, Nev.

Many who doubled down on this city's housing market folded and became renters. Could Vegas's pain be an investor's gain?

"It's not just low rents and vacancy that matter, it's the purchase-price-to-annual-rent ratio, which is called a multiple," says Seth Rabinowitz, executive and lead consultant for management consulting firm Silicon Associates in Beverly Hills, Calif. "Cities with the highest multiples are the worst investments and the lowest multiples are the best investments."

The multiple for Las Vegas is the nation's lowest: a low-ball six, which means that housing prices are only six times annual rents.

• Vacancy rate: 8.6 percent
• Economy: 14.2 percent unemployment. The Vegas economy depends on tourism and is not expected to rebound until the rest of the country's recovery is well under way.
• Trends: Population is expected to nearly double in the next decade due to rising Hispanic demographic and continuing south and westward migration of Americans.

Runners-up

Sin City is not the only bargain-priced American town. Other areas for investors seeking low multiples include:

• Phoenix, Ariz. (7)
• Arlington, Texas (7)
• Fresno, Calif. (8)
• Miami, Fla. (8)

San Jose

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Steepest rent increases: San Jose, Calif.

Rabinowitz recommends that you consider the future demand for your rentals before buying them. "It's not just low rents and vacancy that matter, it's the direction of the rents--are they heading up or down?"

Silicon Valley rents are emphatically heading the right direction--its landlords collected the highest rent hikes in the nation between May 2010 and May 2011--a 9.5 percent jump overall, with some communities' rents skyrocketing by nearly 20 percent! In addition, the vacancy rate in the Silicon Valley is among the lowest in the country.

• Vacancy rate: 2.6 percent
• Economy: 10.4 percent unemployment. However, the area experienced the largest year-over-year percentage increases in employment in large metropolitan areas according to the Bureau of Labor Statistics.
• Trends: San Jose's economy has added jobs every month since June 2010 (following 21 straight months of job losses), and this is expected to continue.

Runners-up

If California's not your dream, rents are also spiking in these towns:

• Providence, R.I. (6.9 percent)
• San Francisco, Calif. (6 percent)
• Colorado Springs, Colo. (6 percent)
• Minneapolis, Minn. (4.7 percent)

Phoenix

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Highest projected growth: Phoenix, Ariz.

"In addition to low vacancy rates and high rents, population growth is a critical factor to ensure consistent tenancy and long-term rent growth. Because of this we target states in the sunbelt such as Florida and Tennessee," says Ryan Hinricher, senior housing analyst and portfolio manager for Investor Nation, a real estate investment company.

The Wharton School's vaunted population forecast predicts Maricopa County will experience more growth than any metro area in the decade ending in 2020, making Phoenix a hot market for rental property.

In addition, Phoenix enjoys one of the lowest price-to-rent multiples. Property prices run only about seven times annual rents, which makes rentals in Phoenix nearly as cheap as those in Las Vegas.

• Vacancy rate: 7.3 percent
• Economy: 8.7 percent unemployment (and it's improving). Data from the Bureau of Economic Analysis show a healthy 5.4 percent year-over-year growth.
• Trends: Housing prices appear to have bottomed out, dropping to $126,000 from $126,700 between the first and second quarters of 2011.

Runners-up

Hot towns don't exist only in the deserts. You can also find them on both coasts.

• Los Angeles, Calif.
• Las Vegas, Nev.
• Houston, Texas
• Miami, Fla.

Minneapolis

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Most attractive to job seekers: Minneapolis, Minn.

Why do you want to invest in a town attractive to job seekers? "People often rent when they first move to a new city," explains Todd Huettner of Huettner Capital in Denver, Colo. He recommends targeting locations with younger populations ("younger people rent") and a diverse economy.

Realtor Ryan Halset of Boardwalk Real Estate in Seattle, Wash., agrees. "When assisting investors in evaluating property for rental, one of the primary indicators we evaluate is the proximity to major job centers," he says.

Minneapolis, Minn., delivers on both requirements, according to Apartments.com, and is a top city on its "Best Cities for Recent College Graduates" list. Its rents are increasing and its vacancy rate is as low as they go.

• Vacancy rate: 2.6 percent
• Economy: 7.5 percent unemployment. The top employers come from diverse industries and include U.S. Bank, 3M, Land O'Lakes, Target and United Healthcare.
• Trends: Minneapolis's already solid economy is getting even better, according to the Federal Reserve. It recently reported that the unemployment rate "is expected to drop to 6.2 percent by the end of 2012. Gains in personal income are also expected."

Runners-up

If you prefer warmer climes, don't worry, these other cities also made Apartment.com's list:

• Denver, Colo.
• Atlanta, Ga.
• Washington, D.C.
• St. Louis, Mo.

Raleigh

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Most livable: Raleigh, N.C.

Tops on Business Week's list of "America's Best Cities," Raleigh's low vacancy rate and growing rents are no surprise.

The mainstay of the so-called Research Triangle, Raleigh is home to North Carolina State University, Duke University and the University of North Carolina at Chapel Hill. The city boasts 867 restaurants, 110 bars and 51 museums, and offers a lively social scene, good schools and tons of green space.

Why should you buy a rental in a livable city? Rabinowitz says, "It's always comforting to know that you could move into your investment property one day if necessary or because you choose to."

• Vacancy: 5.2 percent
• Economy: 8.4 percent unemployment. Education, defense technology, biotechnology, and life sciences sectors and emerging clean tech and smart grid industries have bolstered the local economy.
• Trends: Wake County is projected to be the 25th-fastest-growing population in the U.S. Its population is expected to get a bit younger over the next decade. Forbes ranks it second in its list "Best Cities for Young Adults."

Runners-up

The most livable locales offer good wages; ample culture; a healthy, educated populace; and lots of recreation. Here are four more highly livable towns:

• Seattle, Wash.
• Austin, Texas
• Virginia Beach, Va.
• Burlington, Vt.

Sources

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Today's economic forces are opening up many opportunities for investors in residential real estate. Finding a good income property in any of these areas shouldn't be too difficult.

Sources:

Vacancy data and rent increase data from Axiometrics
Apartment Market Performance May 2011

Employment data from the US Bureau of Labor Statistics
Metropolitan Area Employment and Unemployment Summary

Housing price data provided by Standard and Poor's
Case-Shiller Home Price Indices September 27, 2011

Best Cities data provided by Bloomberg Business Week
Which is America's Best City?

Population projections from University of Pennsylvania's Wharton School
Forecasting 2020 U.S. County and MSA Populations

Economic data provided by US Department of Labor Statistics Economy at a Glance

All other sources cited within the slides.