Which Cities are the Best to Invest in Real Estate?

by Ryan Moeller on August 7, 2009

Should you follow everyone and invest in the hot appreciating markets the media and everyone talks about?

The media has a much different approach in that they look at hot markets speculatively as ones that will appreciate, our approach is much different. I previously wrote on the topic where to invest and identified many smaller cities, the Midwest and OH as areas that hit on all 4 of my criteria: Little chance of depreciation, lots of available deals, low competition, multiple exit strategies.

Here I will identify specific cities that have an oversupply of opportunity for savvy investors, using the PMI U.S. Market Risk Index that I talked about in that previous post.

PMI US Market Risk Index

			PMI US Market Risk Index
		Risk Rank	1st qtr 2009	4th qtr 2008
Riverside-San Bernardino-Ontario CA	CA	High	99.9	99.9
Miami-Miami Beach-Kendall FL	FL	High	99.9	99.9
Los Angeles-Long Beach-Glendale CA	CA	High	99.9	99.9
Fort Lauderdale-Pompano Beach-Deerfield Beach FL	FL	High	99.9	99.9
Las Vegas-Paradise NV	NV	High	99.9	99.8
West Palm Beach-Boca Raton-Boynton Beach FL	FL	High	99.9	99.8
Orlando-Kissimmee FL	FL	High	99.9	99.6
Tampa-St. Petersburg-Clearwater FL	FL	High	99.9	99.7
Santa Ana-Anaheim-Irvine CA	CA	High	99.9	99
Phoenix-Mesa-Scottsdale AZ	AZ	High	99.9	98.8
Jacksonville FL	FL	High	99.9	98.9
Sacramento–Arden-Arcade–Roseville CA	CA	High	99.9	97.9
San Diego-Carlsbad-San Marcos CA	CA	High	99.8	97.2
Providence-New Bedford-Fall River RI-MA	RI	High	99.3	98.3
Detroit-Livonia-Dearborn MI	MI	High	98.8	86.3
Edison-New Brunswick NJ	NJ	High	96.7	89.4
Oakland-Fremont-Hayward CA	CA	High	96.4	80.7
Newark-Union NJ-PA	NJ	High	96	84.1
Nassau-Suffolk NY	NY	High	91.9	78.3
Washington-Arlington-Alexandria DC-VA-MD-WV	DC	High	91.7	88.2
Portland-Vancouver-Beaverton OR-WA	OR	High	89.8	66.4
Baltimore-Towson MD	MD	High	89.6	83.8
Virginia Beach-Norfolk-Newport News VA-NC	VA	High	89	77.6
New York-White Plains-Wayne NY-NJ	NY	High	87.8	67.6
Atlanta-Sandy Springs-Marietta GA	GA	High	80.7	55.8
Boston-Quincy MA	MA	High	79.5	56.6
San Jose-Sunnyvale-Santa Clara CA	CA	High	78.4	51.4
Minneapolis-St. Paul-Bloomington MN-WI	MN	High	74.5	58.5
San Francisco-San Mateo-Redwood City CA	CA	Elevated	66.2	31.6
Warren-Troy-Farmington Hills MI	MI	Elevated	57.9	23.6
Seattle-Bellevue-Everett WA	WA	Moderate	46	30.3
Milwaukee-Waukesha-West Allis WI	WI	Moderate	44.6	27.5
Cambridge-Newton-Framingham MA	MA	Moderate	40.6	27.3
Chicago-Naperville-Joliet IL	IL	Moderate	36.2	13.7
Philadelphia PA	PA	Moderate	30.3	27.5
Indianapolis-Carmel IN	IN	Low	28.8	9.6
Austin-Round Rock TX	TX	Low	28.1	17.4
Cincinnati-Middletown OH-KY-IN	OH	Low	27.4	12.1
Kansas City MO-KS	MO	Low	26.2	11.2
Denver-Aurora CO	CO	Low	21.2	14.2
Nashville-Davidson–Murfreesboro–Franklin TN	TN	Low	16.6	12
Charlotte-Gastonia-Concord NC-SC	NC	Low	15	5.7
St. Louis MO-IL	MO	Low	12.9	13.8
Fort Worth-Arlington TX	TX	Minimal	5.8	2.5
Dallas-Plano-Irving TX	TX	Minimal	3.8	2.5
Houston-Sugar Land-Baytown TX	TX	Minimal	3.7	2.7
San Antonio TX	TX	Minimal	2.8	3.8
Columbus OH	OH	Minimal	2.1	2.4
Pittsburgh PA	PA	Minimal	1.5	1.7
Cleveland-Elyria-Mentor OH	OH	Minimal	1.5	2.3

I am going to focus on markets with Minimal to Low PMI Risk Rank and that hit on my other 3 criteria.

I did extensive research on 3 of the TX markets and it seemed a screaming deal on a foreclosure was 20% below market. While you may be able to find a great deal, I found the availability and competition to not be as favorable as some of the other markets. While the markets are very stable, the TX cities I am passing on but savvy investors can do very well.

I found the same thing in NC, SC, Kansas City, Oklahoma City and Alabama. You can find good deals, but it is more difficult to find a great deal or that diamond in the rough. A great deal I consider to be around 50% LTV and rents are 1.5-3% of Total In (Purchase+Rehab).

The Best Markets to Invest In

The markets I found to be overflowing with great deals and hit on all 4 criteria are Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis. You can cherry pick from incredible deals that have multiple exit strategies, tremendous cash flow, tremendous equity and you do not run into much competition.

We have found deals around 50% LTV with rents of $1400 for only 60K. That is great cash flow and equity. Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis are the cities to invest in.

I welcome and look forward to all comments and questions.

Got questions about this or other real estate topics? Ask on the BiggerPockets Forums.

Article Author: Ryan Moeller

Ryan has written 45 articles for us.
Visit Ryan's Website: http://www.realreturnrealestate.com

Ryan is the founder of Real Return Real Estate™ , a company focused on buying property at extreme discounts, selling and renting with cash flow.

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{ 18 comments… read them below or add one }

1 clare August 7, 2009 at 7:45 am

I am impressed with your research and that is what I think is key to remember when investing in property you need to make sound decisions that are the best for your money and that you make a good return on investment

2 Steve August 8, 2009 at 7:51 pm

This is some great research. Does an areas positive or negative migration pattern factor into your analysis?
.-= Steve´s last blog ..House #16 – Under Contract =-.

3 Ryan Moeller August 10, 2009 at 3:03 pm

Thanks for the comments guys. Clare, I totally agree, it is best to make informed business decisions and stick to your criteria. Steve, I do take into consideration the outlook of the market however the entire market may not tell the story of one single property. My main criteria for a deal is that it must have multiple exit strategies. If the market does drop and you cannot flip then you can rent and cash flow the property. Again it is important to stick to your criteria, competition and lack of available deals can make it hard to find deals with good enough numbers to have multiple exits and be able to withstand surprises, depreciation and mistakes. Happy Investing Guys!!
.-= Ryan Moeller´s last blog ..3514 W 58th, Cleveland, OH 44113 =-.

4 Angel Navarro August 10, 2009 at 6:10 pm

Thanks for this article. You hit various cities that are very favorable to a Real Estate Investor.

5 Erick August 10, 2009 at 8:05 pm

Thanks Ryan…your thought enrich mine.Even the way of survey and analysis is great…Your 4 criteria…i think i will write about it on my blog and track back here if it is OK…
.-= Erick´s last blog ..Worldwide Property Show in Dubai =-.

6 Ryan Moeller August 10, 2009 at 9:37 pm

Hey Erick, that would be great if you wrote and tracked back. I look forward to reading you blog.
.-= Ryan Moeller´s last blog ..3514 W 58th, Cleveland, OH 44113 =-.

7 Ryan Moeller August 11, 2009 at 11:33 am

Justin,

Check out the PMI Risk Index Report below. I recommend doing research on areas in Oregon and Washington to find areas where you can find great deals with multiple exit strategies.

http://www.pmi-us.com/media/pdf/products_services/eret/ERET_Appendix_0709.pdf
.-= Ryan Moeller´s last blog ..3514 W 58th, Cleveland, OH 44113 =-.

8 Ryan Hinricher August 11, 2009 at 7:51 pm

Ryan,

Thanks for the good information. It is very timely and I can see you spent quality time in choosing your cities. My company is based in Memphis and I’ve assembled a portfolio of homes there. My sentiments are equal. Although we sell property in Memphis it is good to hear unbiased validation.

We are seeing the foreclosures affecting specific neighborhoods but the PMI Index seems to be dead on with the overall market. Cheers!

9 Lawrence adler August 18, 2009 at 3:48 am

Hi Ryan
Read your informative report, but I notice you didn’t mention Detroit, which looks like an investors dream !!! I am an overseas investor and have been watching the Detroit market with interest, but not quite sure if I should dive in.
Your view would be much appreciated
Many thanks

10 Ryan Moeller August 18, 2009 at 9:15 am

Good point Lawrence. I know investors who only invest in Detroit. The auto industry and economy has really affected Detroit, last I heard there was 15% unemployment. But let’s face it, the auto industry and Detroit are not going anywhere and they will rebound. Most investors in Detroit have a long term strategy and can handle vacancies. A 5-10 year plan and I believe you can clean up in Detroit, most investors stay away because they want immediate returns.
.-= Ryan Moeller´s last blog ..3514 W 58th, Cleveland, OH 44113 =-.

11 Joshua Dorkin August 18, 2009 at 9:46 am: Ryan –
The rust belt has been poised for a recovery for decades, but that never happened. Why are you convinced that Detroit will be any different? I just don’t see anything that sells me on investing, as an individual, in a city in decline.
Reply

12 Ryan Moeller August 18, 2009 at 10:19 am

I don’t anticipate a tremendous recovery and phenomenal appreciation, that would be speculating. Detroit is hurting right now and properties can be purchased for under 10K all day long. Say you purchase 10 properties, fix them up and are in a total of 200K, rent them out and they are worth 500K. Even a steady decline and you should profit. Now if you where in 350K, I would pass in a heartbeat. What I am saying is that you can buy properties at such a low LTV that cash flow tremendously. I would expect some vacancy until the economy and auto industry stabalize, and would not expect appreciation rather expect depreciation. You can still make money. I myself am not sold on Detroit, but I do know many investors that only invest in Detroit and will likely clean up. For anyone that invests there, I recommend they really do their homework and due diligence.
.-= Ryan Moeller´s last blog ..3514 W 58th, Cleveland, OH 44113 =-.

13 Jose Luis June 15, 2010 at 2:41 pm

Hi, my name is Jose Luis and I live in Ecuador, South America.

My wife and I would love to start investing in the US with single familiy homes. Although we have never been in Cleveland, Columbus, Akron, Cincinnati, Toledo, Indianapolis or Memphis, places in which you recommend to buy for rentals, ( we have only been in Florida ), it seems great advise.

So, my question is: In this places, do you know a few rental properties administrators that can run and manage our properties if we buy in this Cities ?, thanks, we appreciate it, regards.

14 Ryan Moeller June 15, 2010 at 3:33 pm

Jose,

My advice is to evaluate a large number of property managers until you find 3-5 good ones. Do research on what to look for in good property managers. We have had good experiences with our property managers but have had to fire some bad ones and replace with good ones. It is hard to recommend without knowing exactly what and where you are purchasing. Ours may focus in certain areas and property types. Feel free to contact me for advice when you do purchase. Best of luck.

15 Chris C. June 27, 2010 at 8:32 pm

Nice article; what key factors should one consider when thinking about investing in an area?

Also, if do you have an any recommendations for investing in lots/land properties?

Thanks.

16 Ryan Moeller June 27, 2010 at 11:10 pm

Thanks Chris,

I look for high rent to purchase ratios and strong LTVs. A lot of the smaller, less hyped markets have strong rent to purchase ratios. If there are a lot of foreclosures then there will be plenty of deals to cherry pick from.

17 Gilad August 27, 2010 at 10:26 pm

Hi Ryan,

first, thank you for the great article.

I am not a U.S resident and I would like to invest in the U.S real estate market.
I know that one of the factores is the neighborhood. can you recomend on some neighborhoods in these cities or refer to a website that does this?

Thanks,
Gilad

18 Ryan Moeller August 28, 2010 at 8:29 am

Hey Gilad,

It requires an expert in each market to determine the specific neighborhoods. If you have a market to focus on you can find an expert, agent and gather the info you need to find those areas. For instance, I have neighborhoods I focus on in my target markets as we have done many deals and know the areas. There is not one source that tells you which neighborhoods in each city, that would take years. I do recommend 1st time home buyer areas. I hope this helps.