5 Most Profitable Cities for First-Time Landlords in the South

What makes a great city for first-time landlords? Affordability matters for all rental investors, but it’s especially crucial to most first-time investors. Landlord-tenant regulation also matters. Owner-friendly laws make it far easier for landlords to enforce their lease contracts and collect revenue for their business.

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Which raises another component of a great city for rental investors: yields. Landlords want to earn cash flow at the end of the year, after all. To keep the numbers simple when comparing cities, many investors use the gross rent multiplier, or GRM, which is the median property price divided by a year’s worth of median rents.

As you explore cities in the South for buying rental properties, start with these five.

Augusta, Georgia

• Median Home Price: $240,717

• Median Rent: $1,488

Investors in Augusta enjoy a relatively low GRM of 13.48, compared to the national average of 14.97. Another way to think of GRM is the number of years it would take for rents to pay for the purchase price of the home (if you had no other expenses, which of course you will).

“Due to Fort Gordon and the thriving cybersecurity industry, Augusta offers affordability with robust rental demand,” said Daniel Cabrera, professional real estate investor and CEO of Fire Damage House Buyer.

Georgia also ranks fifth on LawDepot’s list of the most landlord-friendly states in the country, making it attractive for investors.

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Memphis, Tennessee

• Median Home Price: $246,017

• Median Rent: $1,498

Rent tracker Rentometer ranks Memphis fourth on its list of best major cities nationwide for rental yield. Which makes sense, given its attractively low GRM of 13.68.

“Memphis delivers great cash flow for new landlords, but most investors overlook it, chasing flashier cities like Nashville or Austin,” said Eli Pasternak of Liberty House Buying Group. He goes on to add that flashy or hot cities tend to offer poor rental investments. “Those cities have terrible rent-to-price ratios now.”

Tampa, Florida

• Median Home Price: $368,374

• Median Rent: $2,160

Despite being a metropolitan city with major league sports franchises and an extensive waterfront, Tampa remains affordable. It also continues offering a relatively low GRM of 14.21.

Larry Shinbaum, real estate agent and broker at Luxuri International, points to the Tampa Bay metro as his first choice for new landlords. “I think Tampa and St. Petersburg are goldmines right now, thanks to strong migration, job growth, and no state income tax.”

Real estate accounting software Stessa agrees, ranking the area first in the nation for rental investing.

Birmingham, Alabama

• Median Home Price: $257,856

• Median Rent: $1,467

With its affordable median property price and GRM of 14.65, Birmingham remains a great place to buy rental properties.

Rentometer ranked it second among medium-sized cities for rental yield, and Stessa ranked it third among overall cities for landlords.

“Birmingham works well for beginners because property taxes remain low and the rental market stays stable, with steady demand from medical workers and university employees,” added Pasternak. “I tell my clients that these Alabama properties cost 40% less than comparable Georgia or Florida markets while renting for similar amounts.”

It doesn’t hurt that Alabama ranks first on Law Depot’s list of most landlord-friendly states, either.

Jacksonville, Florida

• Median Home Price: $357,233

• Median Rent: $1,765

Jacksonville has seen huge population growth over the last five years, but hasn’t seen prices explode. The overall GRM is higher than many cities at 16.87, but Pasternak still finds plenty of bargains in the affordable housing space. “I work with clients to buy rental properties for $180,000 that rent for $1,800, giving them solid 1% rent-to-price ratios.”

Indeed, Jacksonville ranked fifth on Stessa’s list of best markets overall for rental investors. And real estate investment specialists RealWealth rank them second in the nation for rental investing.

Florida also features owner-friendly laws, ranking fourth in the country on Law Depot’s list.

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This article originally appeared on GOBankingRates.com: 5 Most Profitable Cities for First-Time Landlords in the South