10 best cities to buy rental property

Would-be homebuyers are sitting on the sidelines now, and many are spending their time in rentals despite the housing bargains out there. It could be a great time to buy a house to rent.

By Jason Notte, TheStreet

The American dream of homeownership has dissolved into the daydream of a decent rental, and some cities are making it very easy on their month-to-month newcomers. Vacancies among the nation's rental properties dropped from 6.6% last year to 6.2% last quarter as 44,000 more units found renters during that period than during the same period a year earlier, according to Reis. That's the largest increase during that normally slow winter period since 2000 and the lowest vacancy rate since 2008.

Slight improvements in job growth and employment figures are driving demand for housing again, but even the 4.5% rate on a 30-year fixed-rate mortgage quoted by Fannie Mae in June -- the lowest since December -- hasn't kept year-to-date existing-home sales from plummeting to 13% of what they were just before the first-time homebuyer credit expired during the same period last year, according to the National Association of Realtors. The foreclosure rate is leveling off, according to RealtyTrac, but the U.S. Census Bureau found that U.S. homeownership dropped from 69% in 2004 to 66.5% at the end of last year.

The $163,700 median existing-home price is 5% lower than it was a year ago, but potential homebuyers facing 9.1% national unemployment and tight credit requiring a 20% down payment on home purchases are content to wait it out in a rental.

Potential landlords love to hear that. Average asking prices ($1,047) and actual paid rent ($991) are up roughly 2% as 79 cities reported rent increases and shrinking rental stock. Reis noted that landlords who were offering incentive packages a year ago that gave tenants three to four months free on 12- to 15-month leases have cut those concessions to a month or less.

Here are the best 10 places (recommended by Reis) to buy a rental property and cash in on rising rents and dwindling supplies.

Columbus Ohio

Vacancy rate: 8.6%
Average rent: $690

Ample vacancies, low rents and continued rent growth are great, but you know what makes them even better? Throwing them into the middle of a college town.

Whether you're a renter or a potential rental property buyer, Columbus, Ohio., has a lot to offer. As with many state capitals that also happen to be home to state universities, Columbus is insulated from economic upheaval by government jobs and a stable employer at Ohio State University. Unemployment is 7.3%, well below the national average.

Unfortunately, it's not immune to economic pressure on the real-estate market and has seen average home prices fall from $140,000 in 2008 to $114,000 today. That includes a 9.1% collapse in the past year alone. Though Columbus' 8.6% vacancy rate is still high, it's actually shrunk since last year and has spurred a 1.2% increase in the city's average rent within the past year.