There was a client who hesitated to invest due to concerns about long vacancies. The impression that South Dakota is a sparsely populated state led to worries about finding tenants. The first question that comes to mind is whether the rental will be successful or if it will remain vacant for months. Therefore, we first checked the recent rental trends and local demand.

The average rent in Rapid City, as of July 2026, ranges from $1,375 to $1,560, with variations in different reports, but it showed a significant increase of 15.1 percent compared to the previous year. A one-bedroom unit is around $1,200, which is about 29 percent lower than the national median. Rather than worrying about vacancies, the rapidly rising rental market was a reassuring sign for that client.

If you have the same budget, it's better to know the loan conditions accurately. Investment property loans require a down payment of 15 to 25 percent, which is higher than for primary residences, and a credit score of at least 620 is needed to qualify, but a score above 740 is necessary to get favorable rates (fanniemae.com). Interest rates are also 0.5 to 0.75 percentage points higher than for primary residences. Expected rental income is only counted up to 75 percent when calculating the loan limit, so this should be factored in from the start.

The effective property tax rate in Pennington County, where Rapid City is located, is around 1.00 percent, with annual property taxes for a median home being about $3,591 (Ownwell). This is similar to the national median of 1.02 percent, so it is neither particularly burdensome nor advantageous. However, if you are moving from another state, do not judge based on the tax rates from your previous state; check the county and school district levies separately.

South Dakota is a state without rent control, and state law prevents municipalities from enacting rent control (hemlane.com). Monthly leases can be increased with 30 days' notice. The security deposit is capped at one month's rent, and additional fees can only be charged for pets or special conditions. Retaliatory or discriminatory increases are prohibited, and typically, a 24-hour notice is required before entering the property.

If you hire a property manager, the fee will be between 8 and 12 percent of the monthly rent. Landlord insurance is priced higher than standard homeowners insurance because it covers rental loss and tenant liability. A good rule of thumb is to set aside about 1 percent of the annual property value for maintenance costs. When considering two properties, comparing the rent level to the purchase price using the 1 percent rule can be a good starting point.

The two properties that client actually compared were in the city center and a new development on the outskirts. The city center property had a lower purchase price and rent, but the concern about vacancies was relatively low, while the new development had a higher purchase price and rent, resulting in similar outcomes based on the 1 percent rule. Ultimately, the deciding factor was the ease of management. The new development is expected to have lower maintenance costs for the time being, making it more favorable for cash flow in the initial years. This case reaffirmed that such differences do not emerge from just one number, whether it be purchase price or rent. Due to the geographical characteristics near Mount Rushmore, some investors also consider short-term rental demand, but since tax and regulatory standards may differ from long-term rentals, it is advisable to check separately when planning to mix both methods.

If you plan to switch to another investment property later, there is also the option of deferring capital gains tax through a 1031 exchange (irs.gov). I ultimately advised that client, who was worried about vacancies, to calculate the rental increase rate and management costs together before making a decision. I also shared that which property is right depends on how much time they can dedicate to management. This is not investment or legal advice, and I recommend consulting a professional before any actual contracts.