Which U.S. Market Offers Maximum Capital Appreciation Over Next Decade?

Question

I’m exploring real estate investment opportunities and want to focus on markets with the highest potential for capital appreciation over the next 10 years. I’ve noticed that some Northeast and Midwest cities have recently led in price growth, but I’m curious to hear from experienced investors:

• Which U.S. markets do you believe will deliver the strongest capital appreciation in the next decade?

• Are there specific cities or regions you’re bullish on, and why?

• What factors are most important to consider when targeting appreciation-focused investments?

Any insights, data, or personal experiences are greatly appreciated!

Thanks in advance!

Peter W. · Answer

The tier 1 cities: NYC, Boston, Washington DC, Philadelphia, San Francisco.

Otherwise I would be looking for places where new builds are hard—either expensive compared to the cost of rehabbing existing housing stock or difficult due to lack of land. LA, San Diego and generally waterfront come to mind on the later.  several of the older Midwest/New England cities come to mind on the former although you would need to double check if the discrepancy has run its course. I would couple that with looking at migration details especially with regards to employment when looking.

Michael S. · Answer

@Sushil Gupta - that's like asking which tech company will be the next google - if we knew the answer, everyone would be buying properties there right now.

Basit Siddiqi · Answer

No one can predict the future.Sometimes the best markets to invest in is where you have a competitive advantage(you know more about than others).Think of a market that you grew up in, went to school or vacation often.You likely know the good / bad streets or pockets of the city that is up and coming.Best of luck to where you decide to invest in!

Maxwell Ventura · Answer

San Diego's up there. We were #1 recently for a period of time.

- Arguably Best weather in the country

- Quality of life is top tier when factoring in beaches, multicultural neighborhoods, restaurants, nightlife, things to do in general

- Life sciences, Tech, AI job market is continuing to improve w/ a dozen or so development projects downtown

- Limited inventory (high demand) for foreseeable future.

- San Diego's population continuing to increase w/o any signs of slowing down

Eric Fernwood · Answer

Hello @Sushil Gupta,

Excellent question.

While no one can accurately predict the future, I can describe the characteristics of cities that are likely to perform well over the long term and experience rapid and sustained appreciation.

Prices reflect the balance (or imbalance) between the number of sellers (supply) and buyers (demand). When the number of sellers exceeds that of buyers, prices decline until the number of buyers and sellers reaches equilibrium. When buyers outnumber sellers, prices rise until supply and demand become relatively balanced.

Demand is largely driven by population change. In cities with declining populations, demand is low, resulting in more sellers than buyers, causing prices to decline or stagnate. When there is significant and sustained population growth, prices rise because demand is high. So the first city criterion is significant and sustained population growth.

Why do people move to a city? In most cases, people move to a city for jobs. However, most jobs are relatively short-lived. Companies in the US only last on average 10 to 18 years. If new companies don't move into the city and create replacement jobs, the only remaining jobs will be lower-paying service sector jobs. When this happens, area incomes fall. City services are funded by sales and property taxes. As city incomes fall, city revenues fall. With declining revenues, the city has no option but to cut back on services. This results in increasing crime and declining schools. When this occurs, people with sufficient income will relocate to cities with better economic conditions, causing a further decline in city revenues. This creates a financial death spiral from which few cities have ever recovered.

Long-term appreciation depends on new companies creating jobs that replace existing ones with comparable wages and skill requirements. When selecting locations for new operations, companies have numerous options. What characteristics make a city attractive to these businesses?

• Pro-business environment: Companies are in the business of making money, not fighting local legislation. This is why so many companies are leaving California. It's simply too expensive and time consuming to battle government regulations while competing with other companies in pro-business environments.
• Low crime: Companies are unlikely to choose any high crime city. Do not consider any city on this list by CBS News.
• Minimum population size: Companies setting up operations seek cities with significant infrastructure. This includes airports, interstate freeways, and a large population from which to hire employees. These assets are typically only found in cities with a metro population exceeding 1 million people.
• Low operating costs: Companies tend to avoid cities with high operating costs. Between various locations, you could have a 20% difference in operating costs. A good barometer for operating costs is insurance and property tax rates.
• Low risk of natural disaster: Natural disasters can devastate your property and the city, leading to job losses and the closure of shops and businesses. This forces people to immediately relocate. While insurance might cover the reconstruction of your property, the community's recovery could take years or, in some cases, never occur. Meanwhile, your expenses, like debt service, taxes, insurance, and maintenance, continue.

Bonus: limited room for expansion. In other words, expensive land. A great example is Las Vegas. It is surrounded by federal and conservation lands and has very limited land left available. When supply is limited and demand (population) continues to grow, the odds are very good that appreciation will be strong.

Sushil, if you select a city that meets the above requirements, you'll have a high probability of rapid, sustained appreciation.

Christopher Stewart · Answer

@Shan Dey the tool has promise. Would like to understand better where you are pulling data from and how accurate it is. Maybe put that in the website somewhere.

Joe Hammel · Answer

Metro Detroit has seen immense appreciation over the last couple years (#1 appreciating city 2023). It has what 99% of Real Estate Investors want overall. Couple hundred bucks a door monthly cash flow, solid ROI, and yes plenty appreciation.

I personally make well over $100k/yr cash flow from my portfolio here. All of which, I’ve purchased within the last 5 years.

There are 2 types of people who dog on Detroit..

1. People who don't actually own property in Detroit

2. People who did it wrong and weren't able to execute.

If you do it right, it’s arguably the best market to invest.

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: .9%-1.4% rule deals

Coc ROI: 4-12%

Total ROI: 20-40%

Cash flow: $50-$250/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-10%+ (has been double digit for a decade)

Location: C+, B-

These numbers are based on the “sweet spot” in Metro Detroit. These are largely in the suburbs and some markets within the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs. While you can't necessarily predict an appreciating market, all of those things impact appreciation and can be helpful to monitor as you're looking for high appreciating markets.

The bad reputation of “Detroit” comes from OOS investors wanting sub $40,000, D class properties in poor condition, because they pencil out to 2-3% deals on paper. We don’t buy those.

We have found what works and repeat it as much as funds allow.

Detroit has one the highest rent to price ratios in the country…and we focus on the best balance of price/location within the area.

Happy to share a picture of my portfolio if you/anyone is curious.

James McGovern · Answer

If I were in your shoes I would focus on Hartford CT and Pittsburgh PA

Peter W. · Answer

On a risk adjusted basis, almost certainly. But it is not me who needs to be convinced it is you. Because you will be the one feeding cash into it on a regular basis. Build a simple excel calculator and Monte Carlo simulation and game play it yourself.

The truth is that it matters less which city you invest and more how you invest. Do you have good operational efficiency? Are you finding good deals? Are you finding value add opportunities? Are you buying where there is favorable supply vs demand. Do you understand the neighborhoods you are buying in?

For almost all people the answer of where you should invest is where you live and if that is not feasible then where you visit frequently. The caveat here is you need to have a good enough local economy. But the answer to your question the economic and network effects of the largest cities means you’ll likely do a better there than anywhere else, but not better enough to overcome sloppy execution.

Which U.S. Market Offers Maximum Capital Appreciation Over Next Decade?

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