For small investors looking for long-term profits from rental properties, five California markets top the list, according to a Zillow Rentals analysis.

In terms of rental income, tax benefits and accumulated home equity (thanks to rapid home value appreciation), landlords in San Jose, California, make the most money: $8,927 per month, or $107,122 per year over a six year period.

Other California markets in the top five for long term profits are: San Francisco ($6,078 profit per month); Los Angeles ($4,328 profits per month); San Diego ($4,165 profits per month); and Riverside ($3,659 profits per month).

The majority of this “profit” is derived from earned but unrealized equity distributed evenly each month over the next six years. Most, if not all, of this profit will not be realized until the landlord sells the property.

The Oklahoma City area the top place where mom-and-pop landlords stand to make the most money on their rental property on a month-to-month basis.  Zillow looked at the top 50 U.S metros to determine which areas provide the best short-term return on investment for landlords. Rental property owners in the Oklahoma City metro area can expect to profit $536 per month on the median home when comparing anticipated rental income versus their assumed monthly mortgage payment.

“When deciding if they should sell their home or rent it out, most mom-and-pop landlords are primarily concerned with whether or not they can cover their mortgage payment each month – they simply can’t absorb monthly losses like professional investors,” said Zillow Chief Economist Dr. Stan Humphries. “However, the greatest returns are actually in markets like San Jose and San Francisco where there are short-term monthly losses, but the long-term earned equity makes them the best markets to invest in.”

Nationally, the Zillow Rent Index has increased 2.5 percent since June 2013 and 9.1 percent since June 2011. On a local level, the Zillow Rent Index has gone up as much as two to three times that amount over the past year in rental hotspots such as metro Chicago (+6.3 percent) and San Francisco (+11 percent).

Top 10 Markets for Long-term Financial Gain (includes home equity gains, tax benefits, and the difference between monthly rental income and mortgage payments after holding onto the property for six years on the median home. Also accounting for property/income taxes, maintenance and vacancy)

Rank	Metro Area	Long-term profit (monthly)	Long-term profit (annually)
1.	San Jose, Calif.	$8,927	$107,122
2.	San Francisco	$6,078	$72,939
3.	Los Angeles	$4,328	$51,938
4.	San Diego	$4,165	$49,983
5.	Riverside, Calif.	$3,659	$43,907
6.	New York	$3,179	$38,147
7.	Boston	$3,009	$36,109
8.	Seattle	$2,861	$34,335
9.	Sacramento, Calif.	$2,694	$32,328
10.	Honolulu	$2,512	$30,144
11-50	Can be found by visiting: http://www.zillow.com/research/landlord-profit-7357/

Top 10 Markets for Short-term Financial Gain (difference between rent and mortgage payment on the median home, accounting for property and income taxes, maintenance and vacancy)

Rank	Metro Area	Short-term profit (monthly)	Short-term profit (annually)
1.	Oklahoma City	$536	$6,431
2.	Miami-Fort Lauderdale, Fla.	$515	$6,184
3.	Tulsa, Okla.	$396	$4,753
4.	Cincinnati	$385	$4,621
5.	Denver	$355	$4,258
6.	Rochester, N.Y.	$349	$4,182
7.	Tampa, Fla.	$287	$3,448
8.	Dallas-Fort Worth, Tex.	$264	$3,166
9.	Indianapolis	$251	$3,014
10.	Memphis, Tenn.	$242	$2,901
11-50	Can be found by visiting: http://www.zillow.com/research/landlord-profit-7357/

 

For short-term financial gain, Zillow identified the top places where landlords make the most money on their rental property based on several assumptions including that the median valued property was purchased five years ago in May 2009, with a 30-year fixed rate mortgage, a 20 percent down payment, and an interest rate of 4.5 percent, roughly the rate that prevailed at the time. For tax purposes we assume that the homeowner is married with a gross annual income equal to the metro-area median and that the property is vacant at a rate equal to the metro-area average vacancy rate. Finally, we assess the net profit excluding equity earned if the homeowner rents out the property for an additional seven years during which home values and rents increase at their historic rates.

For long-term financial gain Zillow identified the top places where landlords make the most money on their rental property based on several assumptions including that the median valued property was purchased five years ago in May 2009, with a 30-year fixed rate mortgage, a 20 percent down payment, and an interest rate of 4.5 percent, roughly the rate that prevailed at the time. For tax purposes we assume that the homeowner is married with a gross annual income equal to the metro-area median and that the property is vacant at a rate equal to the metro-area average vacancy rate. Finally, we assess the net profit and accumulated home equity if the homeowner rents out the property for an additional seven years during which home values and rents increase at their historic rates.