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.
Article Author:
Ryan MoellerRyan has written 17 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.
Joshua Dorkin
Charles Feldman
Ted Karsch.
{ 14 comments… read them below or add one }
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
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
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
Thanks for this article. You hit various cities that are very favorable to a Real Estate Investor.
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
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
I’m from the DC area and thinking of moving to the pacific northwest; if its not too much trouble, are there an cities in Oregon / Washington State that are generally good cities to still invest in property?
Justin´s last blog ..Mortgage Loan Modification Myths and Facts
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
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!
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
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
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.
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
The real trick is getting a house that’s undervalued. I bought in a neighborhood with lots of foreclosures, got in on a sweet 4 bedroom number for 78k.
Joe Duggins´s last blog ..Bankruptcy Hidden Costs