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Best cities for buying single-family rentals

Buying a single-family property and renting it out can certainly be profitable, but monthly yield is largely determined by local home prices and market dynamics.

To steer investors in the right direction, RealtyTrac just released its list of the top 20 single-family rental markets.

With all factors considered, Memphis comes out on top.

RealtyTrac evaluated the top 20 markets by studying the median sales price of three-bedroom homes, the average market rent, cash-purchase cash flow and local cap rates – or returns on investment – for both cash and financed purchases.

In Memphis, a median three-bedroom home sells for $72,600, and the financed-purchase cap rate comes in at 5.8%.

For investors who purchase with cash, the cap rate doubles to 10.38%.

The list includes four Florida cities, Phoenix and two Michigan cities hit hard by the recession and foreclosure crisis--Detroit and Saginaw.  

Daren Blomquist, vice president of RealtyTrac, says finding the right rental property is difficult with institutional investors moving through the space, but he still sees room for focused investors.

"There are still opportunities for the more conservative, individual investor to buy rental homes that generate a healthy return on investment — it often just takes persistence and willingness to pass on bad deals," Blomquist explained.

"The top 20 markets we selected represent the best chance to buy rental homes that generate good cash flow, but opportunities are available in most markets across the country given the combination of relatively low prices, low interest rates and a strong rental market."

See full chart below:

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