Best appreciating markets for buy/hold?

Question

I'm currently looking in different states to purchase a property and convert it into an AirB&B however, i'm having a tough time picking a market. Should I look locally first? (Las vegas) Or should I explore other options - my goal is to go with a(n) fast appreciating market like charlotte, boise, tampa, and atlanta.

Andrew Eherts · Answer

@Erick Guzman Hi Erick! Nice to find another Las Vegas local. There is a lot to unpack for appreciation, since its a fairly complex relationship between many variables. Here are some hard and fast things I look for to signal anticipated expansion phases. This is the order I follow when researching new markets.

1) The Price Index: coined by Las Vegas broker Ted Federwitz (Key Realty), this metric tells you the relationship between home prices and their economic fundamental, which is rent. The function is (Median Rent x 12) / Median Price. This is basically the gross yield, and it will sit between 5% and 11% or so in a healthy, cyclical market. A low price index implies the market may be peaking, while a high index indicates you may be entering expansion. Using price index as a starting point, I move on to....

2) Appreciation momentum: how is the market performing year over year? Is appreciation over the last 12 months greater than the 3-year moving average? The 5-year moving average? If a market appreciated more over the last 12 months than it did on average over longer periods, you have potential momentum. Once you narrow your list further based on this, you can move on to...

3) Demographic data: are people moving in or out? Are median incomes rising or falling? Both of these indicate whether or not there will be an increased demand for home ownership. If you have this along with a high price index, you will probably see prices start to climb. You will find your most promising markets (and it will probably be a short list), so you can then turn to...

4) News: once you have an idea as to what markets are undervalued compared to rents (high price index) and promising population metrics (income and expansion), check the news. I recommend the city's economic development association or the chamber of commerce. They love highlighting where jobs are expanding, what new companies are coming in and new projects that will better the city. Companies coming in, large land development projects and housing starts are great data points. This is a bit more intuitive, though, because its tough to quantify.

Now, appreciation is very complex, so these points are really directional and there is definitely more statistics and math involved. However, if you have a bunch of promising indicators lining up for a certain market, you have a pretty good chance of experiencing outsized appreciation. You can start with Zillow data to get median rents and prices, and you can continue narrowing down as you work through each point.

Erick Guzman · Answer

Thank you very much! It is a pleasure meeting another local! Thank you!

Luis Vaca · Answer

@Erick Guzman hey Erick, I'm looking for something similar. I'm also in Vegas. Let's connect !