How To Determine Best Real Estate Markets for Investing? | HomeUnion

How do I determine the best real estate markets for investing?

The old adage that real estate is a local business has been turned upside down since the advent of remote real estate investing. Technology has removed the geographic barriers to buying properties, so investors, like you, can now purchase fully-vetted and managed single-family rentals (SFRs) online in major metro areas, much like acquiring stocks, bonds or mutual funds.

Now that investment homes nationwide are ripe for the plucking, how do you determine where to invest?


Here are four steps that will help you decide on which markets are best for you to invest in real estate:

Step 1: Determine Your Down Payment and Financing

Before researching markets, you need to determine what is your maximum amount of down payment for investing, and whether you will buy with cash, financing, or a self-directed IRA (SDIRA). This information helps to determine which markets are affordable to you. For instance, coastal markets tend to have higher home prices that might be over your budget.

Step 2: Establish an Investment Goal

Whether you are seeking income for retirement, cash flow for your kid’s college tuition, or a steady balance of both, establishing an investment goal that’s appropriate is important. By having a goal in mind, you can research markets that provide you with the yields you need to achieve your goal.

Step 3: Research the Local Housing Market

Analyze and research the performance of markets across the nation by reading research reports and newspaper articles on metro areas under consideration. An investor should understand the underlying microeconomics shaping each metro area, including job growth, rental rates, median home prices, construction starts, investment home cap rates, as well as supply and demand fundamentals.

Step 4: Evaluate Cap Rates Nationwide

Of all the economic indicators, cap rates are one of the most important factors to consider when determining the best places to invest. Cap rates are the relationship between an investment property’s net operating income (rents minus expenses) and the market value of the asset. Generally speaking, the higher a property’s cap rate, the better the rental returns.

As of mid-year 2016, metros with the best cap rates were Cleveland at 11.1 percent, Columbia, SC at 9.7 percent, Birmingham at 8.5 percent, and Pittsburgh and Milwaukee, both at 8.4 percent, according to HomeUnion® Research Services. Meanwhile, the coastal markets of San Francisco, San Jose and Orange County had the lowest cap rates – between 2.4 percent and 3 percent.

In a nutshell, metros with reasonable or low monthly mortgage payments and stable rents typically make the best markets for returns.

These markets also outperformed the S&P 500 in 2015, and are likely to be a great hedge against the volatile stock market throughout the remainder of 2016.

Let Us Help You Decide

Consult with one of market experts who can help build you a custom portfolio of cash flow proven markets. All you have to do is give us a call at 888-276-0232 or schedule a consultation at your convenience. We’re standing by to help you choose a market that best fits your investment goals.

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