Location Is a Lever: How Rental Property Investors Can Use (and Not Abuse) “Hot Market” Lists
- Rich Arzaga
- 55 minutes ago
- 5 min read
by Rich Arzaga, CFP®, CCIM, The Real Estate Whisperer® Financial Planning
With rental properties, there are things you control—and things you don’t.
You can choose a fixed interest rate.
You can model conservative rent and expense assumptions.
You can decide how much leverage you’re willing to carry.
What you can’t control is when interest rates reach your preferred level, how the Federal Reserve behaves, or how national headlines swing sentiment.
But here’s one lever investors do control—and it’s a meaningful one: where you decide to own rental property.
And while good and bad decisions can be made in both strong and weak markets, an investor’s odds improve when they start in places showing economic momentum, household growth, and improving affordability mechanics. Not hype—mechanics.
So where do you begin?
A Useful (But Incomplete) Starting Point: NAR’s 2026 Housing Hot Spots
The National Association of REALTORS® (#NAR) recently released its 2026 Housing Hot Spots report, highlighting markets where buyer opportunity is expected to re-emerge as conditions normalize.
This is a residential buyer study, not an investor blueprint. Still, it matters for rental owners for two reasons:
First, roughly one-quarter of home purchases in recent years involve investors. Second, when a market expands its household base, housing demand rarely grows in isolation—it tends to pull jobs, services, and economic activity along with it.
Where lower rates and rising supply converge, opportunity reappears.
The 2026 Backdrop: A Transition, Not a Boom
NAR frames 2026 as a transition year, not a return to the ultra-low-rate environment of the early 2020s.
Mortgage rates are expected to ease toward approximately 6%. That’s not cheap money—but it is meaningfully better than the 7%–7.5% environment of 2023–2024. Existing-home sales are projected to rebound by roughly 14%, while home prices are still expected to rise by about 4% nationally, reflecting ongoing supply constraints.
Affordability improves. Sales recover. Prices still rise—just more sustainably.
For investors, this matters because it reinforces a key idea: rates alone don’t drive outcomes. They interact with inventory, incomes, and behavior at the local level.
The 2026 “Hot Spot” Markets (Alphabetical)
Charleston, SC
Charlotte, NC–SC
Columbus, OH
Indianapolis, IN
Jacksonville, FL
Minneapolis–St. Paul, MN–WI
Raleigh, NC
Richmond, VA
Salt Lake City, UT
Spokane, WA
One immediate observation: this list leans east.
The Mid-Atlantic and Southeast dominate, supported by a Midwest core and only a couple of exceptions in the West. That doesn’t mean the West won’t recover—but it does suggest where improving affordability and usable inventory may translate into activity sooner.
The Real Insight: These Aren’t Just “Affordable” Markets
One of the most important takeaways—and one that aligns closely with how I think about real estate risk—is that opportunity markets are not simply cheap markets.
NAR emphasizes something more nuanced: these are places where inventory is returning at price points local incomes can actually support.
Across the list, several themes repeat:
Rate sensitivity: a move from roughly 7% to 6% materially expands buyer eligibility
Inventory alignment: listings are showing up where buyers actually live
Millennial household concentration: demand that was delayed, not destroyed
Migration and job stability: the fuel that sustains absorption beyond the first wave
Opportunity markets are where affordability becomes usable—not theoretical.
Why Rate Sensitivity Matters (But Isn’t Enough)
A one-percentage-point drop in mortgage rates brings millions of households back into the qualification range nationally. That’s meaningful.
But lower rates do not automatically create transactions.
They only translate into activity where:
Inventory exists at workable price points, and
Sellers are willing to meet buyers where monthly payments actually land.
This distinction is critical for rental investors because rent growth, occupancy, and exit liquidity tend to follow actual transactions rather than theoretical demand.
Two Markets That Illustrate the Point
Minneapolis–St. Paul stands out as one of the most rate-sensitive markets in the country. A shift toward ~6% meaningfully expands buyer eligibility while mid-priced inventory is returning. That combination increases the odds that improved affordability turns into real transactions.
Lower rates unlock demand—but only where inventory cooperates.
Salt Lake City pairs one of the youngest household profiles in the U.S. with improving listings in the price bands where demand concentrates. It’s a reminder that demographics don’t matter without supply—and supply doesn’t matter without buyers.
(For a Western counterpoint, Spokane stands out as a post-pandemic market where prices cooled and inventory alignment improved—still rare west of the Rockies.)
How to Use This List Responsibly (and Avoid Market-Picking Hype)
This is where most commentary goes wrong.
A “top markets” list should inform your assumptions, not replace analysis. Used poorly, these lists create optimism bias—the belief that location alone will rescue a weak deal.
A more disciplined approach looks like this:
Use the list as a screen, not a conclusion.
Stress-test cash flow, assuming appreciation never materializes.
Match the market to your strategy, whether that’s long-term income, capital preservation, or tax planning.
Model execution risk—taxes, insurance, financing terms, and management errors often matter more than geography.
Markets don’t remove risk. They only change where it shows up.
The 5% Real Estate Performance Gap™
I call this the 5% real estate performance gap™—the silent spread between expected and actual returns caused by:
Optimistic rent assumptions
Underestimated expenses
Overreliance on appreciation
Ignoring tax friction and capital structure
This gap rarely shows up on spreadsheets upfront. It appears slowly, quietly, and compounding over time.
Location can narrow this gap—but it doesn’t eliminate it.
Ownership bias meets the reality of returns.
The Tax Tailwind: OBBBA + Location + Modeling Discipline
Now layer in tax planning.
The One Big Beautiful Bill Act (#OBBBA) preserved and strengthened several provisions that matter to real estate owners, including the continued availability of #1031Exchanges, a more durable #QBI framework, and the permanent restoration of #100%bonusdepreciation for qualifying property placed in service after the effective dates.
For investors focused on cash flow, this matters.
When combined with:
A market that supports occupancy and rent durability
Conservative leverage
And a realistic operating model
…strategies like #CostSegregation and other tax-deferred or tax-advantaged approaches can materially improve the after-tax performance of an otherwise ordinary rental—not by taking more risk, but by reducing friction.
Final Thought
You can’t control interest rates. You can’t control national headlines.
But you can control:
Where you invest
How you decide to model/forecast performance
How much optimism you allow into your assumptions
Used correctly, lists like NAR’s don’t tell you where to buy. They help you ask better questions—and avoid giving back 5% (or more) of your returns to invisible mistakes.
Written by Rich Arzaga, CFP®, CCIM, Founder, The Real Estate Whisperer® Financial Planning. Helping clients and advisors integrate real estate into holistic financial plans.
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