Investing in High-Cost Vs Low-Cost, Which Will Make Investors Rich?

Source: Photo by Shane on Unsplash

It's no secret that rental property investors are always looking for new markets to invest in. But many don't realize that there's a big difference between high-cost and low-cost markets.

On the surface, it may seem like investing in a high-cost market would be the better option because you can charge more rent and make more money. But low-cost markets can give you a much higher return on investment (ROI).

So which one should you choose?

You can always consult with a professional rental property investor or real estate agent. They can help you analyze rental market conditions and make the best decision for your situation. But if you're looking to evaluate yourself, here are some tips we can give you.

Pros and Cons of High-Cost & Low-Cost Markets

The right market for you ultimately boils down to your goals and objectives as an investor. To help you decide, here is a closer look at the pros and cons of investing in high-cost vs low-cost markets:

Consider all these factors before investing in any hot housing market. If you're not sure it's the right decision, it's always best to speak with a professional rental property investor or real estate agent. They can help you weigh the pros and cons to make the best decision for your situation.

Example: The City of Detroit vs Warren vs Phoenix, AZ

Here’s an example of how these considerations might play out in the real world. Let’s say you’re looking at investing in rental properties in the City of Detroit, Warren, or Phoenix, AZ. Here are the housing market considerations you need to think about before purchasing any properties:

*Figures from Mashvisor **Evaluation from Redfin ***Figures from NeighborhoodScout

• * The City of Detroit: This city is a low-cost market, where you can find properties under the $100k mark. It also has the highest rent-to-price ratios among the three, which means you can earn your investment back the fastest. Moreover, it has the highest cash-on-cash return and growth, where you'll have stable and strong cash flow every month.
• * The City of Warren: Warren is somewhere in the middle—not as expensive as Warren but not as cheap as the City of Detroit. The average price of homes here is around $200k, and it has a lower rent-to-price ratio, meaning it'll take you longer to earn your investment back. However, Warren does have the potential for appreciation, where your property value could increase over time.
• * The City of Phoenix: Phoenix is the high-cost market among the three. The average price for a home is well above $400k, requiring significant capital. Plus, its rent-to-price ratio is the lowest, so it'll take even longer to reach your return on investment. But Phoenix does have a lot of potential for appreciation and is a great choice if you're looking for long-term growth.

Each rental real estate market has its own strengths and weaknesses that you must weigh.

If you want immediate cash flow and stability, then the City of Detroit is your best bet. If you're looking for appreciation and long-term growth potential, then Phoenix would be a better choice. And if you want a balance of the two, then Warren is a good middle ground.

Assuming that you’re a rental property investor looking for cash flow though, and you have $500,000 on hand to invest in rentals, would you rather invest it in five Detroit properties, two Warren properties, or one Phoenix property?

Take a look at the returns and the answer is clear:

Best Rental Real Estate Markets That’ll Make You Rich

When it comes to investing in rental properties, there is no one-size-fits-all solution. You'll need to carefully consider all of the factors involved before making your decision. But as long as you do your research and consult with experts, you should be able to find the best rental markets for your needs.

To answer the question of which market will make you rich, well, it comes down to the property you invest in.

Being a property management company in Metro Detroit, however, we can say with confidence that the City of Detroit is a promising rental property market. With its low prices and high rent-to-price ratios, you can earn your investment back quickly and start seeing a healthy return each month.

Do you need help with a Metro Detroit rental property investment?

Reach out to us—our inbox is always open to guide any new or mogul investors to get their share of this lucrative market. You can also of property managers in the area to handle your rental portfolio with ease and expertise.