Best cities and districts to invest in 2017 / 2018

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Best cities and districts to invest in 2017 / 2018

Account Closed
Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes

Based on your experience, what are the best cities to invest in the next couple of years?

The city i live in (los angeles) is overpriced and most of investments i've seen lately do not make any sense; i'm therefore compelled to now look for opportunities in other cities and states where the markets are still recovering.

The strategy would be mosty buy and hold; value added multifamily and single family portfolios projects; the strategy would be to buy at a discount, rehab, lease, refi, and move to the next project

Criterias:

- minimum 1-2m+ metro areas

- landlord friendly laws

- minimum 10% net cap rates

- strong appreciation

- low vacancies / supply

- low property taxes

- low income taxes

- low price to income ratios

- positive demographics

- healthy local economy

I've done some researches and found that Detroit, Cleveland, Indianapolis, Pittsburg could eventually be interesting markets despite weak demographics; at least for the next couple of years

What's your take about that?

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Michael Swan
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y

I have 109 front doors in Euclid, Painesville, Cleveland Heights, Shaker Heights, and Akron.  Dayton may be another.  I truly believe that these areas are an emerging market and the price is right.  Be careful about RE taxes in these areas.  Read David Lindahl's Emerging Markets book and you will see why.  I also love his Multifamily Millions book too.

Swanny

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  • Jim D.
    Investor · United States · Member since 2015 · 415 posts · 487 votes
    9y

    Good approach, though I'm sure aware it's not very realistic to get everything on this list. Usually have to give on some criteria to get others, and pick which ones are the most important to you.

    5Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Cedric Ballet I think Indy is really the only city with historical population growth. Some markets that there decimated in the 60's have had growth over the last decade or two but (I think) you still end up with some housing stock issues, it's harder to pick the sub-areas that will be gentrified, etc. If you're trying to buy-and-hold you probably want to focus on your thoughts on the longevity of the market instead of 10% vs. 8% cash-on-cash returns 🤷🏻‍♂️
    1Reply
  • Michael Swan
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    I have 109 front doors in Euclid, Painesville, Cleveland Heights, Shaker Heights, and Akron.  Dayton may be another.  I truly believe that these areas are an emerging market and the price is right.  Be careful about RE taxes in these areas.  Read David Lindahl's Emerging Markets book and you will see why.  I also love his Multifamily Millions book too.

    Swanny

    10Reply
  • Ryan Evans
    Rental Property Investor · Cleveland, OH · Member since 2016 · 653 posts · 769 votes
    9y

    My vote goes to Cleveland. I've got two duplexes there. The city has plenty of real estate potential and big economic drivers that are slowly turning it around. The number two medical facility in the world and a couple of the best sports teams in the nation, for example. 

    6Reply
  • Hank Keller
    Rental Property Investor · Mansfield, OH · Member since 2017 · 151 posts · 117 votes
    9y

    @Account Closed - Ive been in indy for almost 5 years now with turnkey rentals and continue to get great results. Every month during the bus tour, the owner gives a lot of population, job and housing statistics about Indy and a few other cities.

    Here's some interesting info on Indy...

    - Indy has long term steady growth of ~615/week
    - Indy unemployment is < 4%
    - Indy has a highly diversified economy (Sports, Healthcare, Pharmaceuticals, Conventions, Education & Gov.
    - Indy has a low cost of housing with no geographical constraints for building (oceans, mountains or rivers)
    - Indy is red hot with technology right now with Millennials flocking to the city for jobs

    Hank

    5Reply
  • James Hunt
    Investor · Cleveland, OH · Member since 2016 · 96 posts · 27 votes
    9y
    Memphis is a good place to invest.
    3Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Account Closed:

    Based on your experience, what are the best cities to invest in the next couple of years?

    The city i live in (los angeles) is overpriced and most of investments i've seen lately do not make any sense; i'm therefore compelled to now look for opportunities in other cities and states where the markets are still recovering.

    The strategy would be mosty buy and hold; value added multifamily and single family portfolios projects; the strategy would be to buy at a discount, rehab, lease, refi, and move to the next project

    Criterias:

    - minimum 1-2m+ metro areas

    - landlord friendly laws

    - minimum 10% net cap rates

    - strong appreciation

    - low vacancies / supply

    - low property taxes

    - low income taxes

    - low price to income ratios

    - positive demographics

    - healthy local economy

    I've done some researches and found that Detroit, Cleveland, Indianapolis, Pittsburg could eventually be interesting markets despite weak demographics; at least for the next couple of years

    What's your take about that?

    Watch out for the cities that you hear EVERYONE talking about. The ones you listed a are pretty good. They are newer on the list for investors. Maybe Indianapolis might be oversaturated with investors. 

    Good luck to you!

    1Reply
  • Account Closed
    OP
    Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes
    9y

    thank you all for the inputs

    i found these interesting reports if it is of any interest to you

    This study from Fitch analyzes most US markets and determines how overvalued or undervalued they are

    https://www.fitchratings.com/site/structuredfinanc...

    This one compares housing supply vs population growth vs price growth

    I find the graph at the bottom of the page particularly interesting 

    http://lenkiefer.com/2016/05/22/population-growth-...

    3Reply
  • Account Closed
    OP
    Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes
    9y

    @Michael Swan

    indeed... 3,39% in Detroit, 2,23% in Cleveland...

    0Reply
  • Account Closed
    San Francisco, CA · Member since 2017 · 56 posts · 23 votes
    9y

    Given your criteria, it sounds like you are looking for the "perfect" market rather than the right market for you.  At many points in time, many of today's hot markets didn't fit all these stipulations yet over time, they did yield returns. 

     I've read posts from @Andrew Johnson who emphasized knowing your market and having some connection/knowledge of the area.  I'm in complete agreement with this because I used to live in Columbus and now I live in SF.  Over the time I've been gone, this city fit all the criteria listed above yet when I lived there in the mid aughts, it didn't fit any.  After a recent visit the city hasn't changed much at all except for the one area with the largest appreciation ie. gentrification.  Yet the entire mid-Ohio has seen double digit appreciation as a whole.

    To sum it up, pick your the market you know and one you would like to visit at least once per year and get ready for the long haul.  

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    As @Account Closed says, I'm a big believer in pick some area where you have some kind of connection.  Just someone to tell you where the "wrong side of the tracks" are.  You don't have to be a real estate investor to know what areas you won't drive through a 2:00 a.m. on a Saturday.  But guess where the best projected pro-formas are?  You don't *need* that data to make a decision but newer investors on BP seem to put a lot of weight in 8% vs. 10% cash-on-cash returns.  They don't go through the next step of determining what that actually means (in dollars) at the end of the year.  If you have $25K to invest in a down payment (for the arbitrary $100K house) that works out to ~$40 per month.  

    So you're basically talking about two pizzas a month determining a "good" vs. "bad" investment.  Focus on the area, the pizza money (in this case, LITERAL PIZZA MONEY) will work itself out over the long-term. 

    7Reply
  • Account Closed
    OP
    Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes
    9y

    @Account Closed

    Of course, i look for the perfect market; who doesn't

    well, if i only had invested in market i know and where i have connections, i wouldn't have made much deals by now, never left my home country and i would never leave California, the land of low yields

    I think by educating yourself, talking with local developers, investors and re agents, you can get the informations you need in little time 

    Cities like Detroit, Toledo, Cleveland, Pittsburg are probably better fits for short term investments like rehabs; poor demographics and high property taxes are not really appealing for long term rental investments; 

    What do you guys think about Jacksonville, Florida for rentals? 

    1Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    9y

    I'd find somewhere you can relate to and understand... vs something who's selling point is it looks better on paper. You'll have a far better (maybe easier) time if you pick a market that speaks to you for whatever reason. I also wouldn't follow any "set" rule of how often or little you need to visit, but I would say you need to be able to understand it to the point where you're basically a local. You should be able to look at a map and have solid understanding of what's going on in the area you invest in (where do people shop, work, who lives there, why do they live there, etc). It sounds overwhelming maybe at first, but it becomes really easy. You should be as comfortable with your out of state market as you are home.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    A low cap rate is usually the market signalling that the asset has a high chance of appreciation (as well as the market viewing the asset as low risk).  A high cap is often the market signaling that the asset has a very low chance of appreciation (and may be a high risk asset).  

    Basically...trying to find a property with a high cap rate and a high chance of appreciation is like looking for a unicorn.

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    10Reply
  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    9y

    You're list sounds like the wants on a dating profile. You're going to need to live without some of them else you're never gonna get a date, sorry i meant find a deal

    10Reply
  • Rohith Janga
    Fort Collins, CO · Member since 2016 · 34 posts · 13 votes
    9y
    Originally posted by @Russell Brazil:

    A low cap rate is usually the market signalling that the asset has a high chance of appreciation (as well as the market viewing the asset as low risk).  A high cap is often the market signaling that the asset has a very low chance of appreciation (and may be a high risk asset).  

    Basically...trying to find a property with a high cap rate and a high chance of appreciation is like looking for a unicorn.

    sorry i am not able to understand your perspective. 

    Cap rate = NOI / price of property . As a newbie if you ask me , i would say i want high cap rate, which means the property's NOI is high relative to its price. can you please elaborate how appreciation is related to cap rate ? Obviously , i am not seeing it the way you are seeing it.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y
    Originally posted by @Rohith Janga:
    Originally posted by @Russell Brazil:

    A low cap rate is usually the market signalling that the asset has a high chance of appreciation (as well as the market viewing the asset as low risk).  A high cap is often the market signaling that the asset has a very low chance of appreciation (and may be a high risk asset).  

    Basically...trying to find a property with a high cap rate and a high chance of appreciation is like looking for a unicorn.

    sorry i am not able to understand your perspective. 

    Cap rate = NOI / price of property . As a newbie if you ask me , i would say i want high cap rate, which means the property's NOI is high relative to its price. can you please elaborate how appreciation is related to cap rate ? Obviously , i am not seeing it the way you are seeing it.

     Let's take for instance properties in San Francisco, Boston, DC etc. The reason these cities have low cap rates is because the market is pricing into the assets price both future rent growth and future asset value growth.  A low cap rate is often indicative of a higher chance of future appreciation. Conversely markets with high cap rates are that way because the market does not see large growth in the assets value nor future rent growth in any meaningful way.  

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    7Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y

    @Account Closed I wouldn't lump Indianapolis in the same category as Detroit, Cleveland or Pittsburg in terms of having weak demographics at all. Indy has a strong population growth combined with a healthy, diverse economy. It already is an "interesting" market and has been for years. I've been involved in the Indy market since 2010 and know it well. You might want to take a closer look at it.

    5Reply
  • Account Closed
    OP
    Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes
    9y

    @Mike D'Arrigo

    yes indeed, thank you for the input

    I've given a closer look, and it looks like an attractive destination for rental investments; 13,1% average yield and 4,5% vacancy

    There is also Kansas city MO and Columbus OH which offers very similar metrics, with growing populations; just slightly more expensive, but also higher incomes

    1Reply
  • Jarrod Kohl
    Boston, MA · Member since 2017 · 209 posts · 126 votes
    9y
    Originally posted by @Rohith Janga:
    Originally posted by @Russell Brazil:

    A low cap rate is usually the market signalling that the asset has a high chance of appreciation (as well as the market viewing the asset as low risk).  A high cap is often the market signaling that the asset has a very low chance of appreciation (and may be a high risk asset).  

    Basically...trying to find a property with a high cap rate and a high chance of appreciation is like looking for a unicorn.

    sorry i am not able to understand your perspective. 

    Cap rate = NOI / price of property . As a newbie if you ask me , i would say i want high cap rate, which means the property's NOI is high relative to its price. can you please elaborate how appreciation is related to cap rate ? Obviously , i am not seeing it the way you are seeing it.

     TO add to what Russell said:

    If you are buying a fixer-upper and looking to add value it probably has a lower cap rate. If it had a perfect cap rate, how would you add value to it?

    To the OP, as others have said, that is quite the list.  I personally would choose Ohio or MA, but that is because I have great property managers/rehab teams in both locations.  If you are doing out of market deals it is sometimes better to find something where you know somebody. 

    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y
    Originally posted by @Account Closed:

    @Mike D'Arrigo

    yes indeed, thank you for the input

    I've given a closer look, and it looks like an attractive destination for rental investments; 13,1% average yield and 4,5% vacancy

    There is also Kansas city MO and Columbus OH which offers very similar metrics, with growing populations; just slightly more expensive, but also higher incomes

    I agree. We're actually in both Indianapolis and Kansas City which I consider two of the best cash flow markets in the country. There's lots of markets which offer good ROI but in my opinion, Indy and KC offer the best combination of ROI and strong economic and demographic fundamentals.

    1Reply
  • Bryan C.
    Investor · Spokane, WA · Member since 2014 · 733 posts · 155 votes
    9y
    @cedric where are you getting your data/#s?
    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Of your list, I like Indy better than Detroit and Cleveland. Not a fan of their market fundamentals. Pitts could be decent but I don't know much about it as far as what it can offer. I definitely prefer more proven demographics and basic market fundamentals.

    Some info on things I look for-

    https://www.biggerpockets.com/renewsblog/2014/02/2...

    Hope that helps!

    2Reply
  • Account Closed
    OP
    Investor · Miami, FL · Member since 2014 · 80 posts · 32 votes
    9y

    @Bryan C.

    depends what datas you refer to

    I think attom datas, rentrange, Cushman and wakefield have some good informations about yields, vacancies, rent growth etc

    https://www.attomdata.com/news/heat-maps/best-mark...

    http://markets.businessinsider.com/news/stocks/Ren...

    http://www.cushmanwakefield.com/~/media/marketbeat...

    If you want to look at the fundmentals, look for reports like these

    https://www.localmarketmonitor.com/index.cfm?event...

    or go to the census.gov page

     https://www.census.gov/quickfacts/fact/table/cleve...

    3Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    9y

    Columbus Ohio is a very good market to invest in.  With great tax incentives available, many businesses such as Facebook and Amazon are taking advantage of the well educated, tech savvy workforce in Columbus and moving a lot of there operations here.  With OSU, the largest college in the country, and being the state capitol, there is no shortage of tenants.  There are a lot of up an coming areas that are getting good returns and will continue to grow in addition to well established neighborhoods that have always had a steady return on investment. My vote goes to Columbus! 

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    3Reply
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