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BPInsights Data: Top 5 Real Estate Investing Markets for 2020

BPInsights Data: Top 5 Real Estate Investing Markets for 2020

4 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized ...

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You’ve pinched your pennies and/or partnered with investors, and you have now $50,000. You’re ready to invest in real estate. Congratulations!

Now, the big question becomes: which market is going to give you the best return? Where should you invest—locally or long-distance?

Well, think of this analysis like a big funnel starting broadly at the top with all of the markets in America or worldwide. I’m going to walk you through how to narrow that funnel down a little bit to five that I want to point out today. These are places that could give you an amazing return.

How BPInsights Evaluates Markets

So, let’s do some quick math.

Again, this video is about having $50,000 to invest. After closing costs (which are, let’s say, like five grand) and setting aside money for reserves or maybe a little bit of rehab (which are, let’s say, another five grand), you’ve basically got $40,000 for your down payment.

While there are definitely exceptions, we’re going to assume for right now that you’re looking to make a standard 20% down payment, which basically has us looking to invest in properties with values of under $200,000. So, we’re looking at five markets today under $200,000 that could give you a great return. (I mean, that weeds out a ton of markets that don’t meet that criteria.)

Close up view of bookkeeper or financial inspector hands making report, calculating or checking balance. Home finances, investment, economy, saving money or insurance concept

Annual Rent Growth

Next, we want to look at markets that have strong rental and property appreciation growth. Thanks to BPInsights, all of this information is at your fingertips—you won’t have to dig for that data. Check it out at biggerpockets.com/insights.

Compound Annual Growth Rate

Now, we can narrow the rest of the markets down to five that have proven, consistent increases in rent year over year and three-year compound annual growth rate—the fancy metric known as CAGR—of nearly 10. I’m looking for that, which means it’s basically grown 10% per year.

Rent-to-Price Ratio

And then, of course, we’re going to look at rent-to-price ratio. Rent-to-price ratio is a simple metric that looks at the percentage of the monthly rent compared to how much you bought it for. For instance, $1,000 rent divided by $100,000 is 1%.

I like to get things as high as possible. It doesn’t guarantee a good deal, but it’s a good indication.

Cash-on-Cash Return

Furthermore, where are we looking at cash-on-cash return in these five markets? That means the percentage of your money that you get back in profit from the cash flow in the first year. If you invested 10 grand and you made back $1,000 in the first year, that’s a 10% cash-on-cash return.

The mistake that most people make when they’re running an analysis like this happens in underwriting. They assume the mortgage and maybe tax and insurance, but they don’t account for some of the other expenses in owning rental properties—like vacancy, repairs, maintenance, and property management.

The numbers that we’re using here (the estimates) are based on the general regional cost of those extra expenses. I call that pure cash flow or pure cash-on-cash return. It means it’s been through the fires; it’s been purified.

So that’s what the numbers we’re looking at today are: an estimate of what you would likely actually receive on average during the first year in cash-on-cash return in these five markets.

With that, counting down from five. Our first featured market is…

Top 5 Real Estate Investing Markets for 2020

5. Joliet, Illinois

Joliet’s rent is relatively high—over $1,400 a month. But the expenses are also a little bit higher than average, especially the property taxes. They’re crazy high.

So that one comes in fifth on our list with an estimated $1,727 in annual cash flow, which is a 4.7% return on your investment.

4. Trenton, New Jersey

The highest annual rent of the five on this list, but also the highest estimated expenses, an investor could see $2,300 per year in annual cash flow, which is a roughly 6.1% cash-on-cash return.

3. Tuscaloosa, Alabama

Tuscaloosa will return 6.3% of your investment on average in that first year and a strong annual cash flow of $2,416. Tuscaloosa has surprisingly low property taxes, but they might require hurricane insurance due to the proximity to the coast.

2. High Point, North Carolina

High Point offers an affordable entry point for investors. Median sale price is around $130,000. So in other words, like if you put 20% down on $130 grand, it’s only $26,000—well under the $40K we budgeted for the analysis.

Property prices have appreciated an impressive 5% since 2017. Rents also look very strong for High Point with a median rental price of almost $1,000 a month (I think it’s $968). Rents have grown 11% since last year and have averaged 9% per year since 2017.

So, overall our data team estimates $2,110 in annual cash flow and a return of 7%.

Now, finally, let’s get to our number one market on this list for the best markets for investing 50 grand…

1. Palm Bay, Florida

Palm Bay could give you a cash-on-cash return of 8.8%, which is $3,286 a year. Not too shabby for that first year investing!

Now, keep in mind, everybody, this analysis is based on median and average numbers for 2020. Don’t assume every deal in these markets is going to look exactly the same. Your job as an investor is to beat the average.

With any market you’re interested in, you’ve got to learn everything you can about that market. Learn about the employers, the home prices over the last 20 years, and much more. That will help you find specific neighborhoods and then a specific property to invest in.

Of course, don’t forget to check out BPInsights—the new feature built for BiggerPockets Pro members to identify those best markets, those best neighborhoods, and the best properties.

BPInsights v2 blog ad

Do you invest in any of these markets? Do you agree with this analysis? Do you have questions?

Let me know in the comments below.