But the coronavirus pandemic has caused an immense shift in the way we think about work. It has accelerated the rise of ecommerce, remote work, and flexible hours.
In addition, it has sparked a surge of entrepreneurship: New business applications are up nearly 40% from this time last year. We’ve seen that people are not letting the pandemic get in the way of starting their dream business, or capitalizing on a new opportunity.
Increasingly, we expect home-based entrepreneurship to become a societal norm. We also expect to see demographic and geographic shifts as people become untethered from living in certain cities or regions, and can look to new cities where homes are cheaper, startup costs are lower, living is more affordable, and internet speeds are still robust enough to conduct business.
Whether you’re looking to start up an ecommerce endeavor, devote more time to your consulting gigs, or want to begin monetizing the workout class you’ve been workshopping among your friends, you may want to consider the lower costs and opportunities these 15 cities offer.
3 Big Takeaways on The Best Cities to Start a Home-Based Business
Texas reigns supreme on our list: The Texas cities of McAllen and El Paso took the top two spots in our rankings, thanks in part to their low home prices, low effective tax rates, and minimal ongoing costs of running an LLC. In all, three Texas cities make this list, including San Antonio at number 14.
The South and Midwest dominate the field: Every city that made our top 15 is located either in the country’s southern or midwestern regions. The higher costs of living along either coast play a large role in this.
The little costs add up: Although median home prices and income tax rates were the biggest factors we used when measuring these cities, factors such as the cost of utilities and the fees associated with filing to become an LLC impacted rankings and are worth considering.
The 15 Best Cities to Start a Home-Based Business
These are the best cities for starting a home-based business in the U.S., according to our factors.
1. McAllen, Texas
This southern Texas city tops our list thanks to its low home prices (a median home price of $124,000), a very low effective median income tax rate (14.82%, based on the median household income in the U.S. of $68,703), and Texas’ low cost of doing business. Internet download speeds in Texas are also higher than in other top-ranking states featured on this list.
2. El Paso, Texas
Not much separates El Paso, the number two city on our list, from the top spot. Median home prices are a bit higher ($130,000), but otherwise our rankings have these two cities pretty much equal across the board.
3. Memphis, Tennessee
No longer just a great city for blues musicians, Memphis takes the third spot on our list due to relatively low home prices (a median price of $147,000) and an effective median income tax rate on par with the Texan cities. Home-based businesses will need to pay an extra $300 annually in filing fees, which are slightly offset by lower electric costs in Tennessee.
4. Jackson, Mississippi
The capital of Mississippi, Jackson boasts low home prices (a median price of $130,000) and the lowest LLC filing costs on our lists—a one-time fee of just $50.
5. Lakeland, Florida
Florida makes its only appearance on this list in the form of Lakeland. Lakeland’s median home prices are the third-highest in our top 15 ($173,000), but Florida’s low tax rate and decent download speeds help elevate this city above nearby cities such as Tampa (where the median home price is $201,000).
6. Chattanooga, Tennessee
Our second Tennessee city in the top 15, Chattanooga is nestled in the foothills of the Appalachian Mountains. The effective median income tax rate is low, as are the costs of utilities throughout the state.
7. Tulsa, Oklahoma
The historic city of Tulsa comes in seventh on our list thanks to a median home price of $154,000, low utilities costs, and very reasonable LLC filing rates ($25 a year after a $100 first-time fee).
8. Toledo, Ohio
With one of the lowest median home prices on this list ($122,000) and Ohio’s low LLC filing costs (a one-time fee of $99), Toledo is the first of many Ohio cities to make this list.
9. Oklahoma City, Oklahoma
Nearly right behind Tulsa is Oklahoma City, which fell behind due to a slightly higher median home ($158,000) and thus a slightly higher cost of living.
10. Cleveland, Ohio
Cleveland rounds out the top 10 cities on this list thanks to fairly low home prices (median price of $135,000) and average tax rates and utilities costs.
11. Knoxville, Tennessee
The city of Knoxville has some of the higher median home prices on our list ($175,000) but a very low effective median income tax rate (14.82%) and low utilities costs.
12. Dayton, Ohio
Another Ohio city here, as Dayton impresses with low median home prices ($128,000) and just a slightly higher effective median income tax rate than other Cleveland cities.
13. Greensboro, North Carolina
The seventh state on this list appears in the form of Greensboro, with median home prices ($145,000) far below those of other well-known North Carolina cities such as Charlotte ($227,000) and Raleigh ($262,000).
14. San Antonio, Texas
With the highest median home prices in the top 15 ($185,000), San Antonio is a bit of an outlier, but Texas’ strong tax rates and one-time LLC filing costs help buoy this city of fascinating colonial heritage.
15. Akron, Ohio
Finishing up our list is yet another Ohio city in Akron, giving Ohio four places in the top 15. Akron’s effective median income tax rate assuming a median income (18.97%) is a smidge higher than some of the other Ohio cities, and has a median home price of $138,000.
This report measured five factors that we considered most important when deciding where one could most affordably and comfortably operate a home-based business.
- Median home price (50% of total score): This is the median price of buying a single-family home or condo in the country’s 100 largest metro areas. Although you can run a business out of any size home, having the opportunity to run your business from a separate office is not only a bonus, it makes it easier to write-off home office costs on your taxes. Data on December 2019 median home prices comes from Kiplinger.
- Effective median income tax rate for married households (25% of total score): Your effective tax rate varies depending on your income, as well as where you live and whether you’re subject to federal, state, and/or city taxes. We used SmartAsset’s state income tax calculators and assumed an income of $68,703 (the 2019 nationwide median household income) to determine the effective tax rate in each city.
- Utility costs (10% of score): Your utility costs can go up if you spend more of your time at home. We used the average price of electricity by state in July 2020 to determine utility costs. The Electric Power Monthly ranking from the U.S. Energy Information Administration was the source for this factor.
- LLC filing fees (10% of score): The cost of filing to become an LLC is worth your time and investment for its legal benefits. Every state has different LLC filing costs, some of which recur annually. We used LLC University’s 2020 LLC filing fees by state.
- Internet download speed (5% of score): Most major cities will have fine download speeds, but some states have better internet options which can help your operations run more smoothly. Data for this metric came from Fastmetrics’ Median Internet Speeds by USA States – 2020.
The Bottom Line
You can start your own home-based business from anywhere, whether it’s your NYC studio apartment or a Wyoming ranch. It’s undeniable, however, that some states and cities are more conducive to saving money than others. And now that so many of us are working from home for the foreseeable future, it may be time to consider whether one of the above cities is a good place to start the venture of your dreams.
Eric Goldschein is the partnerships editor at JustBusiness and Fundera.
Eric Goldschein has a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business data and trends. He has written for a number of outlets including Business Insider, HuffPost, Men’s Journal, BigCommerce, Volusion, Square, RetailNext, Zenefits, and Keap.