Where should you invest in rental real estate?

Where Should You Invest?

thumb tack on a map

Location, location, location. That old real estate cliché is truer than ever when it comes to real estate investing. Traditionally, most real estate investors, especially first-time investors, bought property that’s close to home. They knew the real estate market and the local economy better and it was easier to keep up with changes that might affect their property. Most managed their own properties and should anything happen to their rental, they could get on top of the situation quickly.

The Foreclosure Era is Ending

Today, however, there are good reasons for looking afar for investing opportunities. The geography of real estate investing is changing. The volume of foreclosures that provided a low entry cost during the housing depression has declined dramatically as the Foreclosure Era winds down, and their prices have increased in many markets. The better opportunities for foreclosures are no longer in the markets where real estate investing took off, like Southern California, Arizona and Nevada. Today you are more likely to find good deals on properties in markets like Memphis, Cleveland, Pittsburgh and Chicago.

Purchase price, however is only one part of the equation. Equally important is demand. Can the market support rents high enough to meet your financial goals? Your investment won’t succeed unless you can charge rents high enough to recoup your purchase costs, pay for financing and operating costs and deliver a profit. Is the local economy strong enough to ensure your property stays rented? Yet even with an adequate rental rate, unless your unit is rented every month, you could lose money. Empty rentals eat away your profits quickly.

Pick the Right Market

Rent rates and vacancy rates are a function of demand, and demand is a function of the local economy. People leave towns that are struggling and move to places where there are good jobs. Housing in hot markets is in demand. Other factors that vary by locale affect your operating costs, including taxes, property management and rehab. A good market does well in all these categories as well as acquisition costs. Picking the right market can make all the difference.

So where are the ideal communities to invest in today? Where’s the best market, if you could go anywhere? Here are descriptions of top ten markets, with their risk rankings low, medium, speculative and dangerous) from Local Market Monitor, a leading real estate research company.

Atlanta– Low Risk

Several big institutional investors set up shop in Atlanta in 2013, driving up prices, but there are great deals to be had for rental purposes depending on your criteria and situation. Atlanta has a very active investing community and is one of the top markets for investors in the nation. You’ll find opportunities as well as competition. The economy is strong and so are rents.

Baltimore- Medium Risk

There are many great investment opportunities in Baltimore City and Baltimore County. Maryland still has many foreclosures and prices are right for all tiers of housing. The city’s strong economy and student population make it a good rental market. If you’re interested in Baltimore, hurry. Prices are expected to rise 8% this year.

Birmingham– Medium Risk

Birmingham is a smaller market with great opportunities and not much competition. Prices are very low compared to other markets and many beginning investors find Birmingham to be a great market to get started in investing.

Chicago– Medium Risk

There are great opportunities in Chicago’s extensive neighborhoods as well as in the suburbs that ring the city. Different areas of city offer a variety of options ranging from loft condos to single family townhouses and small apartment buildings. Chicago’s prices are very reasonable, though they have been on the upswing in recent months.

Cincinnati- Medium Risk

Ohio, not Florida or Nevada, is the center foreclosure activity today, due largely to state laws that prolong the foreclosure process. Cincinnati offers a wide range of neighborhoods and properties, just like anywhere. You can find properties with great cash flow and relatively low prices. Look to Cincy if you’re want cash flow more than appreciation. A diversity of employers like P&G, AK Steel, GE Aircraft Engines keeps employment strong.

Cleveland– Medium Risk

It’s a great time to buy in Cleveland right now–the business climate has turned around 100% and there’s about $4 billion in construction activity going on downtown. There are great opportunities, but finding the right one for you might take some research to find the right neighborhood.

Ft. Myers- Low Risk

Ft. Myers is in the heart of Florida’s West Coast, a region that may have produce more foreclosures and short sales than any other during the glory days of the Foreclosure Era. Lots of distress sales are still available; but today Ft. Myers has become more of a cash flow buy-and-hold market than a flipper market. It’s also a beautiful resort area, attractive to vacationers and retirees.

Indianapolis– Moderate Risk

Indianapolis a good market of you’re looking for some near term appreciation. Year after year listed as one of the nation’s most affordable markets, Indianapolis real estate and the local economy are poised to grow faster than the national average over the next two years, with house prices projected to post a respectable gain according to CNN Money. With a good economy and military installations nearby, it is also a good buy-and-hold market.

San Antonio– Low Risk

Virtually every city in Texas is in the middle of a real estate boom and San Antonio is at the top of the heap. Prices are expected to appreciate over 7.6 percent in 2014, as well as transaction volume. It’s also packed with potential tenants–a large and growing population of students and young adults, and a huge population of military and short-term government contractors. These groups have helped make the Alamo City fourth best in the nation in Realtor.com’s list of rent-friendly cities.

Ready to learn more? Schedule a call