Jazz icon and Los Angeles native Roy Ayers once famously sang, “Everybody Loves The Sunshine.”

Never have truer words been said. The Sunbelt states are having their moment in the (ahem) sun, with hordes of new residents taking flight from cold or pricey Northern and coastal states like migratory birds at the first hint of autumn. Tracking their flight patterns is a valuable tool for real estate investors looking to buy a rental property in the Sunbelt to maximize cash flow.

For reference, these are the states referred to as the “Sunbelt.”

U.S. Census data showed that Southern states are driving the population shift. The South accounted for 87% of the nation’s growth in 2023, adding 1.4 million residents for a total population of 130 million, with a hefty 706,266 people added via net domestic migration. The Northeast—mainly New York and Pennsylvania—was the hardest hit by the movement, which lost 43,330 residents in 2023, down from a 216,576 decline in 2022 and a 187,054 decline in 2021.

However, the Sunbelt’s heat has not merely been fueled by its lower cost of living, balmy temperatures, and shift toward remote work. Jobs are fanning the flame, too, with three Florida cities making the top 10 hottest job markets in 2023, along with Austin and Dallas, Texas. Nashville topped the list of 2022’s hottest job markets, followed by Austin and Jacksonville, Florida.

BiggerPockets decided to investigate the numbers, scouring an extensive housing market database that ranked Sunbelt cities with over 500,000 residents for their rent-to-price ratios (RTP), a common gauge for measuring the ability to cash flow. For example, RTP ratios closer to one are best for cash flow. Given today’s market conditions and the lack of good cash flow options, the bar is set around 0.60-0.70% for ideal targets.

The Highest Rent-to-Price Ratios of Sunbelt Markets With Populations Above 500,000

Above is the dataset for the top 25 markets with populations above 500,000. As you can see, El Paso tops the list with an RTP of 0.71%. Below is a visualization that gives you a better idea of the relationship between RTP values and population size. The reality is that when the population is above 500,000, the relationship isn’t too strong. It seems like population sizes below 1 million offer the most variability, with either end of the spectrum delivering solid cash flow or not much at all. What we can tell, however, is that as the population increases, cash flow seems to decrease. Since we’re using a small sample size here, we can’t say with absolute confidence what the real relationship is here, but you can get an idea based on the results.

 

A Closer Look at the Top Four RTP Markets

El Paso, Texas

El Paso is the sixth-largest city in Texas and the largest metropolitan area along the Texas-Mexico border. Thanks to its border location and bilingual and bicultural workforce, it has fostered business growth recently and is one of North America’s largest manufacturing centers.

According to ElPasoTexas.gov, in 2021, the Borderplex region was the manufacturing hub with the fifth-highest employment rate in North America, accounting for 17% of all trade with Mexico. The area generated $94.2 billion worth of trade with Mexico in 2020, 495-plus manufacturing operations, and 75-plus related facilities in El Paso and neighboring Las Cruces.

The military is another big employment driver—1 in 16 jobs here is tied to the armed services, thanks to Fort Bliss. The government, education, and healthcare are also significant employers. 

According to U.S. Census data, the median household income in 2022 was a modest $55,170, as was the per-capita income of $27,434. However, this is probably not indicative of the newer jobs in the area because Realtor.com’s newest numbers tell a different story, with the median listing home price just shy of $300,000, increasing by 1.4% in the last year. 

The median rental price is $1,650, giving tenants a spacious, suburban ranch-style home. Multiple neighborhoods have prices ranging from just over $100,000 to $600,000. 

If you are interested in investing in El Paso, out of the nearly 4,000 current listings, there are plenty of affordable duplexes/triplexes and one- to two-bedroom homes in decent neighborhoods. These suit both blue- and white-collar workers and generate decent cash flow for landlords.

Jackson, Mississippi

Jackson has hardly been making real estate investing headlines, but its metrics show that it could be a good investment for savvy investors.

While Jackson’s mean salary of $42,193 is hardly staggering, as with El Paso, that probably doesn’t tell the entire story. The city’s middle class is served by the higher-paid industrial jobs in fabricated metals, electrical and electronic equipment, automobiles (Nissan has a plant here), and related automotive components, apparel, food products, furniture, rubber and plastic products, wood products, and aircraft parts. 

Housing is generally affordable, with the median listing home price around $130,000, the median rental price of $1,200 (which gets you a suburban ranch home), and very few homes for sale over $500,000. The low cost of real estate and the influx of newer, better-paying jobs make Jackson, Mississippi, a very good place to invest. 

New Orleans

One of the South’s major American cities, New Orleans, has rebuilt itself emotionally and economically since Hurricane Katrina decimated it in August 2005. The city’s largest employers span modern businesses in energy, manufacturing, technology, healthcare, education, and the government. 

According to the U.S. Census in 2022, New Orleans’ median household income was $51,116, which differs from other reports that state the median income is around $70,000. The city has a wide range of employment types, with better incomes in new businesses skewing the numbers up.

According to Realtor.com, the median listing home price is $354,900, and the median rental price is $1,775, which gives tenants a choice of a single-family home or a new apartment in a good neighborhood. The range of house prices, rents, and incomes generated through modern business and tourism means there are yearly and short-term rental areas in the city, with over 130 annual festivals in the home of Mardi Gras. 

McAllen, Texas

Another booming border town in South Texas, McAllen residents enjoy employment in manufacturing, healthcare, and education, with Realtor.com rating it No. 5 in the top 10 places for middle-income Americans to buy homes in 2022 and Kiplinger ranking it No. 4 in the cheapest U.S. cities to live in 2024. 

Realtor.com says the median listed home price in the city as of March 2024 was $315,000. The average sold price was sizably lower at $222,600, indicating listing agents’ exuberance and optimism regarding the city’s upward trajectory. The median rental price is $1,450, which will get tenants a modern three-bedroom apartment or a spacious, contemporary single-family home.

Final Thoughts

One obvious advantage for many Sunbelt cities is the affordable cost of real estate. Couple this with a healthy job market in modern, growing industries, and you have a recipe for long-term cash-flowing investments. Financially, low or no state income taxes and business-friendly environments are big draws, too. 

The warm weather is another positive, meaning less wear and tear on homes than in colder Northern states, fewer maintenance expenses, and lower utility bills for landlords who own multiunit buildings. 

However, investors should also be wary of an oversupply of homes in Sunbelt cities. A historic number of new rental apartments are currently being built there. In many of these cities, such as Atlanta, Austin, Phoenix, and Las Vegas, rents have begun to flatten out. Investors should carefully select to invest in cities with job growth but limited new rental unit construction.

Exclusive Breakdown and Data Analysis of the Hottest Region for Investors

It’s no secret the Sunbelt has been a primary focus of investors for years due to appreciation and rent growth. But which markets offer the best opportunities for cash flow?

Download our Sunbelt Market worksheet for a synopsis of the most popular metros and states for investors, and get the full data for all states and markets in our accompanying Sunbelt Market Intel spreadsheet.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.