The Best Real Estate Investment Markets Last Year

80 Replies

Hey everyone - we thought that we'd go ahead and let you all know that we put together a study on the 50 Largest U.S. MSAs to see which markets offered the best chance for regular Joe investors to get great returns over the last year or so:

We look at 0-4 unit residential properties (if you can buy a home in a given market for yourself, you can generally also purchase these types of properties) and measure them for two things:

Gross Rents as a percentage of property values in early 2014

Appreciation as a percentage of property values in early 2014

Combining the two, you can see where investor dollars likely went the farthest (before expenses). We hope that this will be useful to you as a starting point in market research!

Feel free to reach out to me or ask any questions about the study here in this thread or under the post itself!

Click here to find out what the best and worst markets were.

What! Detroit made it to the top 10. After hearing all those jokes by Josh on the podcasts, I wasnt expecting that at all :) 

Seriously, whats driving the Detroit market? Is it still attractive? 

Also lots of turnkeys are targetting Birmingham right now and its in bottom 10. Thats interesting too. 

Originally posted by @Hersh M. :

What! Detroit made it to the top 10.

Seriously, whats driving the Detroit market? Is it still attractive? 

Looking at the data, Detroit is driven by very low home values in 2014.  So based on the methodology, you've got "normal" rents on cheap houses so high "income."  Prices also bottomed there much later than other metros.  So Detroit is still in recovery mode while many other cities are much further from the troughs of the recession and have less room to recover (i.e. appreciate).  

I find it odd that some of the traditionally appreciation-play cities such as San Francisco, San Diego, Miami and NYC aren't on the list.  Makes me wonder if using the average price per square foot instead of median sales price would make more sense.

Also, I love that Louisville is in the bottom 10...hopefully that will keep other investors out because as this study indicates it's a terrible place to invest :)

@Michael Seeker I was a little surprised by the data as well...prices are definitely appreciating around here!! Many times data/numbers like these need to be taken with a grain of salt. But like you said, maybe it will scare off some other hopeful investors :)

OF course this is what your going to get when you have super cheap houses with high rent ratios as we all know those are also the most risky.. the most stable markets and the safest markets are in this metric the worse markets..

A neat graph or report would be to see tenant defaults in a given market ... Occupancy rates with the given inventory etc etc.  I think you would see these graphs totally flip flopped.   For instance Portland were we are at did not make the list  we have less than a 1% vacancy and pert near 99% collection rate... what do you think that is in the top market like Detroit.. and I am talking market rents not subsidized rents which skew the reports. Since west coast markets have little to NO section 8 by and large.

@Jay Hinrichs As usual your experience trumps 12 month snap shots. Detroit has been on top of the cash flow mountain for a couple years now. As some point out cash flow does not always equal profits in the bigger picture scheme of things. Not to knock D, as I am glad to see improvement anywhere. For let's say a longterm buy and holder you might consider flip flopping this this list historically and see where that lands comparing the bottom LA vs the top Detroit. Yikes is probably what many would say. 

@Michael Siekerka I am with you. My fear is the economy will get better before I can get rich. Baltimore is also in the bottom 10 (Incorrectly I might add) but that keeps prices low.

Funny that Miami is considered in the top 3.  Just like in late 2008, its a bubble and prices will fall 30%-50% during the next recession when all the international money goes away.

DC is #7....and while I think we do have a good market to invest in, I dont think it is because of the home value to rent ratio.  I also feel like the home values here are listed as kind of low. But I guess it is all about where you pull the statistics from.  Ive seen median home values for the DC metro area vary by almost $150k depending on the source of the information.

This is a wonderful post thanks for taking the time to gather this information. This is one of the first things I have been researching since the market I live in is a little expensive.

I'm curious to know what people here think about investing in a city that is losing population like Detroit. Of course each city is different, and some may have more reason to have a turn around than others.

What's your opinion and what cities would you consider investing in that are shrinking? Detroit, Cincinnati, Cleveland?

Originally posted by @Anthony Alexander :

Cant believe Baltimore is the bottom 10

 That is because they got the numbers wrong. Baltimore is listed as rent being about 6.5% of price. In reality it is more like 15%+. By the methodology used, that would put Baltimore in the top 5!

Originally posted by @Joe Henry :

I'm curious to know what people here think about investing in a city that is losing population like Detroit. Of course each city is different, and some may have more reason to have a turn around than others.

What's your opinion and what cities would you consider investing in that are shrinking? Detroit, Cincinnati, Cleveland?

I bought this house this week for $1000, I also assumed the 2015 taxes of $500.

It is occupied, I have not yet knocked on the door, but the house appears extremely well cared for from the outside appearance.

My favorite play is taking over the houses that the Turn Key buyers abandon.

Don't buy Turn Key properties in Detroit, if you do you probably gave away 90% of the deal without even knowing it. 

It actually looks nicer than the quick photo, I'll take a better photo after I knock on the door.

@Joe Henry: What are you waiting for?

Originally posted by @Jay Hinrichs :

OF course this is what your going to get when you have super cheap houses with high rent ratios as we all know those are also the most risky.. the most stable markets and the safest markets are in this metric the worse markets..

A neat graph or report would be to see tenant defaults in a given market ... Occupancy rates with the given inventory etc etc.  I think you would see these graphs totally flip flopped.   For instance Portland were we are at did not make the list  we have less than a 1% vacancy and pert near 99% collection rate... what do you think that is in the top market like Detroit.. and I am talking market rents not subsidized rents which skew the reports. Since west coast markets have little to NO section 8 by and large.

 This is not the case in Austin, Tx! It definitely deserves to be on this list. 

@Saberian Younger   my point was certain markets may look good on paper and give people the impression they can just jump in as passive investors.. ( like Austin you could do that) but other markets you could lose all your money if your not wise and careful. the study makes no distinction to RISK / REWARD

Originally posted by @Jay Hinrichs :

@Saberian Younger  my point was certain markets may look good on paper and give people the impression they can just jump in as passive investors.. ( like Austin you could do that) but other markets you could lose all your money if your not wise and careful. the study makes no distinction to RISK / REWARD

 I absolutely agree with that point. I'm lucky in that I live and only have to invest in the central Texas area right now. As time moves on I may be more comfortable investing from a distance. 

Originally posted by @Jay Hinrichs :

@Saberian Younger  my point was certain markets may look good on paper and give people the impression they can just jump in as passive investors.. ( like Austin you could do that) but other markets you could lose all your money if your not wise and careful. the study makes no distinction to RISK / REWARD

You also make a good point in that the higher cash flowing properties are the most risky. In a bad economy these are the first to go. I've studied what REIT do and have tried to build my portfolio around those concepts. Some cash flow properties, some equity hold properties and some location hold properties.

Originally posted by @Ned Carey :
Originally posted by @Anthony Alexander:

Cant believe Baltimore is the bottom 10

 That is because they got the numbers wrong. Baltimore is listed as rent being about 6.5% of price. In reality it is more like 15%+. By the methodology used, that would put Baltimore in the top 5!

 Hey guys - I think that calling the numbers "wrong" might be a little misleading. Please note the numbers are for MSAs (metropolitan statistical areas) and in the case of Baltimore that will include not only the city but Howard PG and a couple other counties. Having grown up in a rather wealthy zip code in Howard county, I can assure you that real estate investing returns and strategies will vary dramatically from those of Baltimore city - especially in this year of turbulence following the riots. Maryland as a whole is one of the wealthiest states per capita in the nation, with the glaring exception of some of those in baltimore. The numbers I show yes contain Baltimore city, but also contain the wealthy suburbs that surround it.

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