Everyone loves a deal, a chance to get more for their money. Look no further than the hoardes of stampeding shoppers every Black Friday.
Fortunately for real estate investors, cheap real estate in the U.S. is available year-round for those who understand the risks. Here’s what you need to know about buying cheap real estate, and a list of cities with the cheapest real estate in the United States.
Cities with the Cheapest Real Estate in the United States
So where can investors buy the cheapest real estate in the United States? Better yet, where’s the cheapest real estate in the US that’s still attractive and worth buying?
Using raw data from Zillow, we compiled a list of the 100 most affordable cities and towns in the country. We then created an interactive map of them, including data on year-over-year appreciation in median home sales price.
Without further ado, below are the cities with the cheapest real estate in the United States (all numbers in hundreds of thousands of dollars):
Want to post this map on your website? Embed code here.
Share This Map on Your Site
As you can see, the cheapest real estate in the US is typically found in rural areas, not cities. It's also concentrated in the Midwest and Southeast.
Here are the top 10 cheapest towns and cities in the US (download the full data table with all 100 cities below):
As you scout these cities with the cheapest real estate in the US, just be careful of cities with declining real estate values, high crime rates, high unemployment, and high vacancy rates. Some cities make great bargains. Others are cheap for a good reason!
(article continues below)
Free Masterclass: How to Reach Financial Independence in Under 5 Years
What Constitutes Cheap Real Estate?
Many connect the word "cheap" with poor quality. But when comparing average home prices across cities and towns, workmanship has nothing to do with it.
In the context of the cheapest real estate in the United States, we're simply referring to the average price to buy a property in each city. Compare them to the median US home price of $337,560 in the second quarter of 2022.
That doesn't mean that these real estate markets are a bargain. These towns may never see ballooning median incomes, may never rank among America's expensive cities, no matter how many centuries go by.
Or someone could discover natural resources in one of these towns tomorrow, skyrocketing the cheapest land to surpass the national median. My crystal ball is no clearer than yours.
But the cheapest cities in the US do have a few advantages over their overpriced peers, for savvy real estate investors.
Reasons to Invest in Cheap Real Estate
As inflation roars in the wake of the coronavirus pandemic, many Americans have looked to move for lower cost of living.
Here are a few reasons why investors should consider buying some of the cheapest real estate in the United States.
1. Lack of Affordable Housing
The housing crash and Great Recession slashed housing starts from over 2.27 million in January 2006 to 478,000 in April 2009. While construction has increased since 2009, housing starts remain lower than they did in the 2000s, at 1.7 million in December 2021.
With developers building fewer homes over the last decade, the average sales price of a new home nearly doubled from $259,700 in 2011 to $507,800 in the first quarter of 2022.
Over that time, the percentage of American households who rent their homes increased by more than 20%, according to Pew Research. More than one in three families live in a rental unit today.
2. Strong Employment & Rising Incomes
The U.S. has recovered to full employment levels with an unemployment rate of 3.6%, the lowest in decades and below the 5% healthy market target. Real wages have risen sharply, especially for lower-wage workers. In fact, the US faces a labor shortage, where there are too many jobs courting too few workers.
Since those with lower incomes are the largest group of renters, the trend is favorable for landlords of cheap rental real estate.
3. Finance with Low Down Payments
Low median sales prices mean low down payments. If you don’t buy outright in cash, that is.
And yes, you can take out an investment property loan on cheap real estate. Lenders from traditional mortgage lenders to portfolio lenders like Visio and Kiavi to hard money lenders like LendingOne all lend against low-cost properties. Although minimum loan amounts do range from $50,000 to $100,000, depending on the lender.
That means more options than ever before for using real estate leverage and getting a loan for a rental property, even if you’re self-employed or looking for a mortgage on a rental property owned by an LLC.
See our comparison chart of investment property loans and terms for a range of options and pricing.
4. Low-ish Interest Rates
The average interest rate on 30-year fixed-rate mortgages has fallen from a high of 18.37% in 1981 to around 5.29% in May 2022.
For more, read up on today’s interest rates when getting a loan for a rental property.
5. Mistaken Public Perceptions
Cheap real estate, by definition, is priced below other properties as a consequence of perceived problems: poor location, condition, or tenants. Investors willing to investigate specific properties often find "diamonds in the rough" — real estate that is excessively discounted.
For example, a low income is not, by itself, an indication of character and future tenant defaults. Successful landlords employ low-cost, proactive tenant screening to identify and avoid potential problem tenants.
6. Flexible Financing Alternatives
Buyers of cheap real estate have multiple financing methods to acquire property, including an all-cash payment. While loan-to-value ratios (LTV) for investment real estate are generally 70%-80%, buyers have several options to minimize their down payment. Investors interested in property selling in the lowest price ranges should be aware that many lenders require minimum loan amounts of $50,000-$75,000.
7. Easy Diversification
Owning multiple small assets versus a single high-value asset is a recommended strategy to reduce risk, whether buying stocks or cheap real estate. Investors can easily acquire several lower-priced properties varying by location, tenant mix, and condition for the cash outlay required for a single premium property. To illustrate, an investor with $100,000 might acquire a single home costing $400,000 (75% LTV) or four individual homes, each valued at $100,000 in different locations, for the same out-of-pocket costs.
The combination of these trends presents a rare opportunity to build a portfolio of cheap real estate assets. Carefully selecting a diversified group of affordable rental properties (single-family homes to fourplex units) in the right locations, attracting stable, credit-worthy tenants, and taking advantage of low-interest mortgage loans can produce a steady cash-on-cash return with favorable tax treatment and the possibility of significant long-term capital gains.
(article continues below)
Risks of Cheap Real Estate
No investment is risk-free; cheap rental real estate includes unique risks in addition to everyday economic and environmental hazards. Potential investors may confront some or all of the following:
- Lower demand. Cheap real estate is often located in the less desirable areas of the cities with poor schools, inadequate public transportation, and deteriorating public services. As a result, crime increases so that newcomers avoid the area, and residents seek to move if possible.
- Population & economic decline. You don't need to be an expert on real estate markets to know that shrinking populations spell lower average home prices. As demand and property values fall, wealthier residents and business owners often move elsewhere, or at least stop investing in their property or community. This cycle of urban decay can continue until the area becomes a wasteland.
- Low incomes. Average home prices in any region reflect median household incomes. Low median incomes often correlate with low education levels and socioeconomic problems such as crime and high unemployment rates.
- Troubled tenants. Those who reside in the cheapest rental properties in deteriorating neighborhoods typically earn a low income, are unemployed, or depend on public welfare programs such as Social Security and HUD's Housing Choice Vouchers (Section 8).
- Landlord-tenant disputes. Public agencies and interest groups actively intervene between landlords and tenants as a result of past discrimination and abusive property owners. Anyone who acquires cheap rental real estate should be aware of the local political environment, zoning requirements, and state and local ordinances that might affect a rental contract or dispute.
Beware of property damage, equipment thefts, and high tenant turnover unless anticipated by the new owners. Fortunately, many of the above issues can be avoided or alleviated with diligent research before purchase combined with on-going, active site management; implementation of a comprehensive, non-prejudicial tenant screening process; and proactive landlord-tenant communications.
Cities with High Cap Rates & Low Prices
Wondering which housing markets you should invest in with low property prices and (relatively) high rents?
Zillow only provides rent data for the 100 or so most populous cities in the US, and none of the cities on the list of cheapest housing markets above make that cut. Still, here are the top five cities by best GRM (gross rent multiplier) that are affordable, with median home prices between $150,000 - $190,000.
- Jackson, Mississippi: With a median rent of $1,273, a median home price of $162,524, and a GRM of 10.64, Jackson offers a tempting price/rent ratio. Home values rose 12.11% over the last year, while rents rose 5.21%.
- Winston-Salem, North Carolina: Winston-Salem boasts a GRM of 10.80, with median rents at $1,468 and median property values at $190,261. The median home sales price rose 15.88% last year, and median rents rose an impressive 10.38%.
- Memphis, Tennessee: Memphis offers a similar average home price at $190,005, and an average rent of $1,425, for a GRM of 11.11. Real estate prices grew at 15.62% over the last year, while rents grew 11.92%.
- El Paso, Texas: On the border, El Paso offers a GRM of 11.51, with a median sales price of $162,622, and a median rent of $1,177. The real estate market saw prices rise 16.86% over the last 12 months, and rents rose 7.39%.
- Toledo, Ohio: Median prices in Toledo offer a bargain at $149,028, while median rents clock in at $1,068. Home prices rose 14.04% over the last year, and rents rose 9.31%.
While they don’t rank among America’s largest cities, they do constitute major housing markets, unlike most of the cheapest real estate in the US.
If you opt to invest in real estate long-distance, you have plenty of options, from Roofstock to Asset Column to local wholesalers and turnkey property sellers. In fact, nearly two-thirds of transactions on Roofstock involve buyers who live over 1,000 miles from the property!
One factor to be considered before you purchase cheap real estate long-distance is property management. Who will deal with tenants, collect rents, and maintain the property? Many investors prefer to manage their properties personally, and we're happy to help with our online landlord software.
But if you prefer to hire a property manager, start with Roofstock's list of certified property managers as a good starting point. In more populous cities, you'll have more options to choose among, for property managers.
What have your experiences been in investing in cheap real estate? Have you ever invested in any of the cities listed above as the cheapest real estate in the United States? Share your thoughts below!