Communities appear in order of estimated median "gross annual yield," which measures what percent of a typical local home's price an investor can expect to recoup per year through rent. For example, a house that costs $120,000 and rents for $1,000 a month (or $12,000 a year) has a 10% gross annual yield.
RealtyTrac based median home values on actual prices buyers paid for three-bedroom houses in each community in August.
Similarly, monthly rent estimates refer to August numbers compiled by market tracker RentRange.com for three-bedroom single-family homes, while local jobless rates are as of October and aren't seasonally adjusted.
Figures on institutional-investor purchases refer to what percent of properties sold from May 1 to July 30 went to entities that acquired at least 10 residences nationwide over the past year.
Fifth-best 'hidden-gem' market: Ithaca, N.Y. (Tompkins County)
Gross yield: 10.7%
Cornell University's home region of Tompkins County had zero institutional-investor purchases during the period studied, even though the area has plenty of economic positives.
For instance, three-bedroom houses there rent for a median $1,604 a month but typically cost $180,000 translating into a 10.7% gross annual yield for investors. The 102,000-population county also enjoys just a 4.8% jobless rate vs. 7% nationwide.
Located some 200 miles northwest of New York City, Tompkins County is also home to not one but two major schools. In addition to 21,000-student Cornell (an Ivy League institution), the county also hosts 6,500-pupil Ithaca College.
Fourth-best 'hidden-gem' market: Western Oklahoma City (Canadian County)
Adger believes Canadian County, which includes part of Oklahoma City and its western suburbs, has stayed off of big-money investors' radar screens because the area had only a modest downturn during the housing bust. "Institutional investors tend to look at markets that suffered a lot, not a little," he says.
RealtyTrac found that large investors accounted for just 3.7% of recent Canadian County home sales, helping keep prices at a modest $131,000 for a three-bedroom house. Since rents for such properties run around $1,176 a month, small investors can expect to enjoy 10.8% gross annual yields.
Buyers can also figure on seeing good rental demand, as 116,000-person Canadian County has just a 5.1% jobless rate.
Third-best 'hidden-gem' market: Syracuse, N.Y. (Onondaga County)
Gross yield: 10.9%
The Syracuse/Onondaga County area offers investors the same kind of low home prices, high gross yields and a better-than-average jobless levels seen in Ithaca some 30 miles away.
RealtyTrac says three-bedroom Onondaga homes cost a median $120,000 but generate around $1,085 in monthly rent, meaning buyers can expect 10.9% gross annual yields.
Small investors also face little competition from big players, as the 467,000-person county had zero institutional-investor purchases during the three months ended July 30.
Onondaga County also has a better-than-average 6.7% jobless rate, so landlords can expect decent rental demand.
Second-best 'hidden-gem' market: Lubbock, Texas (and Lubbock County)
Gross yield: 11.8%
You can find plenty of great rental-property deals deep in the heart of Texas in Lubbock County.
RealtyTrac estimates that three-bedroom homes there cost around $111,000 but rent for a median $1,089 a month, which works out to an 11.8% gross annual yield. Institutional investors also account for just 4.9% of all recent Lubbock County sales.
Located some 325 miles northwest of Dallas, the 279,000-population county also boasts a rock-bottom 4.7% jobless rate.
Best 'hidden-gem' market: Wichita Falls, Texas (Wichita County)
Gross yield: 13.4%
Small investors will absolutely fall in love with the Wichita Falls area's housing market.
That's because the typical Wichita County three-bedroom house sells for just $84,000 but rents for $938 a month, offering 13.4% gross annual yields. RealtyTrac also found that institutional investors made only 4.5% of recent local property purchases.
Straddling the Texas/Oklahoma border some 225 miles east of Lubbock, Wichita County and its 132,000 residents also enjoy a below-average 5.6% jobless rate thanks in a large part to locally based Sheppard Air Force Base.
The facility employs some 15,000 civilian and uniformed personnel and accounts for an estimated 20% of Wichita County's economy.
By Jerry Kronenberg