Should you follow everyone and invest in the hot appreciating markets the media and everyone talks about?
The media has a much different approach in that they look at hot markets speculatively as ones that will appreciate, our approach is much different. I previously wrote on the topic where to invest and identified many smaller cities, the Midwest and OH as areas that hit on all 4 of my criteria: Little chance of depreciation, lots of available deals, low competition, multiple exit strategies.
Here I will identify specific cities that have an oversupply of opportunity for savvy investors, using the PMI U.S. Market Risk Index that I talked about in that previous post.
PMI US Market Risk Index
|PMI US Market Risk Index|
|Risk Rank||1st qtr 2009||4th qtr 2008|
|Riverside-San Bernardino-Ontario CA||CA||High||99.9||99.9|
|Miami-Miami Beach-Kendall FL||FL||High||99.9||99.9|
|Los Angeles-Long Beach-Glendale CA||CA||High||99.9||99.9|
|Fort Lauderdale-Pompano Beach-Deerfield Beach FL||FL||High||99.9||99.9|
|Las Vegas-Paradise NV||NV||High||99.9||99.8|
|West Palm Beach-Boca Raton-Boynton Beach FL||FL||High||99.9||99.8|
|Tampa-St. Petersburg-Clearwater FL||FL||High||99.9||99.7|
|Santa Ana-Anaheim-Irvine CA||CA||High||99.9||99|
|San Diego-Carlsbad-San Marcos CA||CA||High||99.8||97.2|
|Providence-New Bedford-Fall River RI-MA||RI||High||99.3||98.3|
|Edison-New Brunswick NJ||NJ||High||96.7||89.4|
|Virginia Beach-Norfolk-Newport News VA-NC||VA||High||89||77.6|
|New York-White Plains-Wayne NY-NJ||NY||High||87.8||67.6|
|Atlanta-Sandy Springs-Marietta GA||GA||High||80.7||55.8|
|San Jose-Sunnyvale-Santa Clara CA||CA||High||78.4||51.4|
|Minneapolis-St. Paul-Bloomington MN-WI||MN||High||74.5||58.5|
|San Francisco-San Mateo-Redwood City CA||CA||Elevated||66.2||31.6|
|Warren-Troy-Farmington Hills MI||MI||Elevated||57.9||23.6|
|Milwaukee-Waukesha-West Allis WI||WI||Moderate||44.6||27.5|
|Austin-Round Rock TX||TX||Low||28.1||17.4|
|Kansas City MO-KS||MO||Low||26.2||11.2|
|St. Louis MO-IL||MO||Low||12.9||13.8|
|Fort Worth-Arlington TX||TX||Minimal||5.8||2.5|
|Houston-Sugar Land-Baytown TX||TX||Minimal||3.7||2.7|
|San Antonio TX||TX||Minimal||2.8||3.8|
I am going to focus on markets with Minimal to Low PMI Risk Rank and that hit on my other 3 criteria.
I did extensive research on 3 of the TX markets and it seemed a screaming deal on a foreclosure was 20% below market. While you may be able to find a great deal, I found the availability and competition to not be as favorable as some of the other markets. While the markets are very stable, the TX cities I am passing on but savvy investors can do very well.
I found the same thing in NC, SC, Kansas City, Oklahoma City and Alabama. You can find good deals, but it is more difficult to find a great deal or that diamond in the rough. A great deal I consider to be around 50% LTV and rents are 1.5-3% of Total In (Purchase+Rehab).
The Best Markets to Invest In
The markets I found to be overflowing with great deals and hit on all 4 criteria are Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis. You can cherry pick from incredible deals that have multiple exit strategies, tremendous cash flow, tremendous equity and you do not run into much competition.
We have found deals around 50% LTV with rents of $1400 for only 60K. That is great cash flow and equity. Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis are the cities to invest in.
I welcome and look forward to all comments and questions.